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Long-term Portfolio investment: New insight into Return and Risk
https://doi.org/10.32609/0042-8736-2015-10-54-77
Abstract
The article examines the influence of investment horizon increase on comparative advantages of main asset classes and on the principles of investment strategy development. Unlike in the traditional approach of portfolio management theory, the study shows that for long-term investments corporate bonds have the advantage over equity in terms of return-risk tradeoff. This fact argues in favor of the fixed-income oriented (including infrastructure bonds) investment strategies for pension funds and institutional investors. The article draws special attention to the importance of regular portfolio rebalancing for long-term investors. In this case the variation of returns decreases and the variation of risks increases with the holding period. Consequently, with horizon increase a long-term investor should allocate more assets in the low-risk financial instruments in order to keep a certain level of return-risk tradeoff. This argument becomes increasingly important for the purposes of pension savings management.
Keywords
pension savings,
long-term investment,
investment horizon,
return on equity and bonds,
investment risk,
portfolio diversification
JEL: D14, G11, G12, G15, G17, G23, H55
About the Authors
A. Abramov
Russian Presidential Academy of National Economy and Public Administration (Moscow, Russia)
Russian Federation
Russian Federation
A. Radygin
Russian Presidential Academy of National Economy and Public Administration (Moscow, Russia); Gaidar Institute for Economic Policy (Moscow, Russia)
Russian Federation
Russian Federation
M. Chernova
Russian Presidential Academy of National Economy and Public Administration (Moscow, Russia)
Russian Federation
Russian Federation
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For citations:
Abramov A., Radygin A., Chernova M. Long-term Portfolio investment: New insight into Return and Risk. Voprosy Ekonomiki. 2015;(10):54-77. (In Russ.) https://doi.org/10.32609/0042-8736-2015-10-54-77
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