Myopic loss aversion and margin of safety: the risk of value investing

Kuan Xu and Gordon Fisher

Quantitative Finance, 2006, vol. 6, issue 6, 481-494

Abstract: This paper examines the risk of value investing from the point of view of a myopic loss-averse investor holding a diversified portfolio and relying on infrequent portfolio rebalancing. This closely resembles purchasing a large portfolio, such as those created by BARRA, and following a buy-and-hold investment strategy. In these circumstances, which portfolio, value or growth, is riskier to a myopic loss-averse investor? To facilitate analysis, a myopic loss ranking and a corresponding statistical procedure are developed and applied to investment-style data provided by BARRA. The paper qualifies the conditions under which value investing is more risky in North American financial markets.

Keywords: Myopic loss aversion; Stochastic dominance; Statistical test; Investment style; Value and growth; Value-index investment (search for similar items in EconPapers)
Date: 2006
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://www.tandfonline.com/doi/abs/10.1080/14697680600780934 (text/html)
Access to full text is restricted to subscribers.

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:taf:quantf:v:6:y:2006:i:6:p:481-494

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/RQUF20

DOI: 10.1080/14697680600780934

Access Statistics for this article

Quantitative Finance is currently edited by Michael Dempster and Jim Gatheral

More articles in Quantitative Finance from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst (chris.longhurst@tandf.co.uk).