Optimality of Buy-and-Hold Strategies

Qi Liu () and Ka Po Kung ()
Additional contact information
Qi Liu: National University of Singapore, Singapore
Ka Po Kung: National University of Singapore, Singapore

Eurasian Journal of Business and Management, 2023, vol. 11, issue 1, 32-45

Abstract: The buy-and-hold way of investing has been taken as gospel by many professional investors since the 1960s. In recent years, however, it has come under harsh attack from both academics and practitioners who claim its ineffectiveness in the face of increasingly volatile markets. This research takes a theoretical approach to evaluating its effectiveness by invoking a powerful optimality theorem to gauge its effectiveness or, more specifically, its optimality level. In terms of optimality level, we determine how well it fares against three other popular strategies – lock-in, random-timing, and stop-loss. To make the concept of optimality level practically operational, we set up a two-factor model to depict the market environment and use Monte Carlo simulation to determine the optimality levels of these strategies. In terms of average optimality level, our results show that, in general, buy-and-hold strategies outperform the other three strategies in stable market environment, but they are outperformed by lock-in and stop-loss strategies in volatile market environment.

Keywords: Buy-and-Hold; Optimality Level; Strategies; Two-Factor Model; Simulation (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://eurasianpublications.com/wp-content/uploads/2023/05/EJBM-11.1.3.pdf (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ejn:ejbmjr:v:11:y:2023:i:1:p:32-45

Access Statistics for this article

Eurasian Journal of Business and Management is currently edited by Nidžara Osmanagić-Bedenik

More articles in Eurasian Journal of Business and Management from Eurasian Publications
Bibliographic data for series maintained by Esra Barakli ().