Who Should Sell Stocks?

35 Pages Posted: 13 Mar 2019

See all articles by Paolo Guasoni

Paolo Guasoni

Boston University - Department of Mathematics and Statistics; Dublin City University - School of Mathematical Sciences

Ren Liu

ETH Zürich

Johannes Muhle‐Karbe

University of Michigan at Ann Arbor

Multiple version iconThere are 2 versions of this paper

Date Written: April 2019

Abstract

Never selling stocks is optimal for investors with a long horizon and a realistic range of preference and market parameters, if relative risk aversion, investment opportunities, proportional transaction costs, and dividend yields are constant. Such investors should buy stocks when their portfolio weight is too low and otherwise hold them, letting dividends rebalance to cash over time rather than selling. With capital gains taxes, this policy outperforms both static buy‐and‐hold and dynamic rebalancing strategies that account for transaction costs. Selling stocks becomes optimal if either their target weight is low or intermediate consumption is substantial.

Keywords: dividends, long‐run, portfolio choice, transaction costs, 91G10, 91G80

JEL Classification: G11, G12

Suggested Citation

Guasoni, Paolo and Guasoni, Paolo and Liu, Ren and Muhle‐Karbe, Johannes, Who Should Sell Stocks? (April 2019). Mathematical Finance, Vol. 29, Issue 2, pp. 448-482, 2019, Available at SSRN: https://ssrn.com/abstract=3352074 or http://dx.doi.org/10.1111/mafi.12179

Paolo Guasoni (Contact Author)

Boston University - Department of Mathematics and Statistics ( email )

Boston, MA 02215
United States

Dublin City University - School of Mathematical Sciences ( email )

Dublin
Ireland

HOME PAGE: http://www.guasoni.com

Ren Liu

ETH Zürich ( email )

Rämistrasse 101
Zurich, CH-8092
Switzerland

Johannes Muhle‐Karbe

University of Michigan at Ann Arbor ( email )

500 S. State Street
Ann Arbor, MI 48109
United States

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