Buy-and-Hold and Constant-Mix May Be Better Allocation Strategies than You Think

The Journal of Portfolio Management, Multi-Asset Special Issue, 2020; DOI: https://doi.org/10.3905/jpm.2020.1.138

Posted: 17 Dec 2019 Last revised: 1 Oct 2020

See all articles by Thomas J. O'Brien

Thomas J. O'Brien

University of Connecticut - Department of Finance

Date Written: December 1, 2019

Abstract

Given mean-reverting equity and interest rate uncertainty, this study shows a relatively low economic cost of using a simple allocation strategy, buy-and-hold or constant-mix, instead of optimal reallocation. Moreover, given the decision to use one of the simple allocation strategies, the study identifies (1) which investors will be better off with buy-and-hold than constant-mix, and vice versa; and (2) which investors will be better off with a horizon-maturity fixed-income position than a sequence of short-maturity ones, and vice versa. The study uses illustrations in a three-period binomial model to “bridge the academic/practitioner gap” and provide useful insights to those interested in applied investment management.

Keywords: buy-and-hold; constant-mix; dynamic allocation; mean reversion; optimal reallocation

JEL Classification: G11

Suggested Citation

O'Brien, Thomas J., Buy-and-Hold and Constant-Mix May Be Better Allocation Strategies than You Think (December 1, 2019). The Journal of Portfolio Management, Multi-Asset Special Issue, 2020; DOI: https://doi.org/10.3905/jpm.2020.1.138, Available at SSRN: https://ssrn.com/abstract=3481167 or http://dx.doi.org/10.2139/ssrn.3481167

Thomas J. O'Brien (Contact Author)

University of Connecticut - Department of Finance ( email )

School of Business
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Storrs, CT 06269
United States
860-486-3041 (Phone)
860-486-0634 (Fax)

HOME PAGE: http://www.business.uconn.edu/staff.asp?id=57

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