The fallacy of large numbers revisited: The construction of a utility function that leads to the acceptance of two games, while one is rejected

P de Brouwer () and F van den Spiegel
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P de Brouwer: Fortis Investment Management
F van den Spiegel: Chief Economist of Fortis Bank, Professor at the Free University of Brussels, and Member of the Executive Committee of Association Belge des OPC

Journal of Asset Management, 2001, vol. 1, issue 3, No 6, 257-266

Abstract: Abstract Should the composition of an investment portfolio differ depending on whether the investment horizon is longer or shorter? Practitioners have always allocated more risky investments to portfolios with longer investment horizons. But in 1963, P. A. Samuelson put forward strong arguments that this is an erroneous approach. Since then, the financial community has lived with this conflict and searched for plausible explanations. In this paper, however, we construct a counterexample to the thesis of 1963.

Keywords: law of large numbers; investment horizon; portfolio construction; decisions under uncertainty; asset allocation (search for similar items in EconPapers)
Date: 2001
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DOI: 10.1057/palgrave.jam.2240020

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