Do not put all your eggs in one (time) basket

Zvika Afik ()

Financial Markets and Portfolio Management, 2015, vol. 29, issue 3, 269 pages

Abstract: We show that it is easy to enhance an investment’s Sharpe ratio at no additional cost by purchasing the risky asset in a few installments instead of all at once. A similar argument holds for selling the risky asset. In the simple case of a geometrical Brownian motion (GBM), we prove analytically that such a strategy decreases the variance of returns without changing the expected returns, relative to the one-shot strategy. We demonstrate the benefits of this strategy by bootstrapping daily S&P-500 prices for the 1985–2013 period and using Monte Carlo simulations of GBM and jump-diffusion processes. The results are statistically significant. We show that the strategy is more effective for short investment horizons and that performance improves with the number of installments used. Copyright Swiss Society for Financial Market Research 2015

Keywords: Investment; Diversification; Monte Carlo; Sharpe ratio; G11; C15 (search for similar items in EconPapers)
Date: 2015
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Persistent link: https://EconPapers.repec.org/RePEc:kap:fmktpm:v:29:y:2015:i:3:p:251-269

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DOI: 10.1007/s11408-015-0252-6

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