 Beyond the short run: The longer time scale volatility of investment valueRoger Bowden and Jennifer Zhu No 33488, Working Paper Series from Victoria University of Wellington, School of Economics and Finance Abstract: Fund and other investments often exhibit longer run volatility associated with macroeconomic or other dynamics to an extent inconsistent with the efficient market accumulation model. Volatility and performance models or metrics based on one-period returns or simple extensions can fail to pick up this, resulting in sub-optimal investment policies, or welfare losses if exit happens to be forced at the wrong time. We show how to use wavelet analysis to resolve problems of detection, attribution and welfare measurement, including assigning volatility metrics and path risk, while dynamic value at risk ideas can be applied to establish clearance points relative to any benchmark comparator path. Generalisations of the spectral utility function can guide investment policy or be used to design optimal portfolios. Band pass portfolios can be designed that smooth investor exposure to long or short run instabilities in investment value. Keywords: Band pass portfoilios; Path risk; Portfolio theory; Spectral utility functions; Long term volatility; Value at risk (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:vuw:vuwecf:33488 Access Statistics for this paper More papers in Working Paper Series from Victoria University of Wellington, School of Economics and Finance Alice Fong, Administrator, School of Economics and Finance, Victoria Business School, Victoria University of Wellington, PO Box 600 Wellington, New Zealand. Contact information at EDIRC. |
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