Share This Article:

Asset Allocation, Time Diversification and Portfolio Optimization for Retirement

Abstract Full-Text HTML Download Download as PDF (Size:489KB) PP. 92-104
DOI: 10.4236/ti.2011.22010    4,059 Downloads   8,780 Views   Citations

ABSTRACT

Using the data of stock, commodity and bond indexes from 2002 to November 2010, this research was carried out by employing Bootstrapping Simulation technique to find an optimal portfolio (portfolio optimization) for retirement, and the effect of diversification based on increased length of investment period (time diversification) with respect to the lengths of retirement investment period and the amounts required for spending after retirement in various occasions. The study analyzed for an optimal allocation of common stock, commodity and government bond to achieve the target rate of return for retirement by minimizing the portfolio risk as measured from the standard deviation. Apart from the standard deviation of the rate of return of the investment portfolio, this study also viewed the risk based on the Value at Risk concept to study the downside risk of the investment portfolio for retirement.

Conflicts of Interest

The authors declare no conflicts of interest.

Cite this paper

K. Panyagometh, "Asset Allocation, Time Diversification and Portfolio Optimization for Retirement," Technology and Investment, Vol. 2 No. 2, 2011, pp. 92-104. doi: 10.4236/ti.2011.22010.

References

[1] R. A. Levy, “Stocks, Bonds, Bills, and Inflation over 52 Years,” The Journal of Portfolio Management, Vol. 4, No. 4, 1978, pp. 18-19. doi:10.3905/jpm.1978.408655
[2] W. Reichenstein, “When Stock is Less Risky than Treasury Bills,” Financial Analysts Journal, Vol. 42, No. 6, 1986, pp. 71-75. doi:10.2469/faj.v42.n6.71
[3] M. L. Leibowitz and T. C. Langetieg, “Shortfall Risk and the Asset Allocation Decision: A Simulation Analysis of Stock and Bond Risk Profiles,” The Journal of Portfolio Management, Vol. 16, No. 1, 1989, pp. 61-68. doi:10.3905/jpm.1989.409236
[4] C. K. Butler and D. L. Domian, “Long-Run Returns on Stock and Bond Portfolios: Implications for Retirement Planning,” Financial Services Review, Vol. 2, No. 1, 1993, pp. 41-49. doi:10.1016/1057-0810(92)90014-4
[5] H. Bjorn and M. Persson, “Time Diversification and Estimation Risk,” Financial Analysts Journal, Vol. 56, No. 5, 2000, pp. 55-62. doi:10.2469/faj.v56.n5.2390
[6] N. Strong and N. Taylor, “Time Diversification: Empirical Tests,” Journal of Business Finance & Accounting, Vol. 28, No. 3-4, 2001, pp. 263-302. doi:10.1111/1468-5957.00374
[7] K. Hickman, H. Hunter, J. Byrd, J. Beck and W. Terpening, “Life Cycle Investing Holding Periods and Risk,” The Journal of Portfolio Management, Vol. 27, No. 2, 2001, pp. 101-111. doi:10.3905/jpm.2001.319796
[8] C. Gollier, “Time Diversification, Liquidity Constraints, and Decreasing Aversion to Risk on Wealth,” Journal of Monetary Economics, Vol. 49, No. 7, 2002, pp. 1439-1459.
[9] T. S. Howe and D. L. Mistic, “Taxes, Time Diversification, and Asset Choice at Retirement,” Journal of Economics and Finance, Vol. 27, No. 3, 2003, pp. 404-421. doi:10.1007/BF02761574
[10] B. Guo and M. Darnell, “Time Diversification and Long-Term Asset Allocation,” The Journal of Wealth Management, Vol. 8, No. 3, 2005, pp. 65-76. doi:10.3905/jwm.2005.598423
[11] S. Mukherji, “A Study of Time Diversification with Block Bootstraps and Downside Risk,” The Business Review, Vol. 10, No. 1, 2008, pp. 55-60.
[12] L. Alles, “The Cost of Downside Protection and the Time Diversification Issue in South Asian Stock Markets,” Applied Financial Economics, Vol. 18, No. 10, 2008, p. 835. doi:10.1080/09603100701222333
[13] K. Panyagometh, “The Earlier You Invest, The Lower Probability of Ruin You Will Get (in Thai),”Competitiveness Review by NIDA Business School, Vol. 1, No. 4, 2009, pp. 75-85.
[14] K. Singh, “On the Asymptotic Accuracy of Efron’s Bootstrap,” Annals of Statistics, Vol. 9, 1981, pp. 1187-1195. doi:10.1214/aos/1176345636

  
comments powered by Disqus

Copyright © 2019 by authors and Scientific Research Publishing Inc.

Creative Commons License

This work and the related PDF file are licensed under a Creative Commons Attribution 4.0 International License.