Efficiency of dynamic portfolio choices: An experiment

40 Pages Posted: 23 Apr 2020 Last revised: 28 Oct 2021

See all articles by Jacopo Magnani

Jacopo Magnani

Norwegian University of Science and Technology

Jean Paul Rabanal

University of Stavanger

Olga Rud

University of Stavanger

Yabin Wang

Norwegian University of Science and Technology

Date Written: February 4, 2021

Abstract

We study the efficiency of dynamic portfolio choices using the nonparametric methods of Dybvig (1988) and Post (2003). We compare a dynamic portfolio task against an equivalent static Arrow-Debreu problem under two alternative environments: (i) nonpooled with 2^T terminal states, and (ii) pooled with T+1 unique terminal states. The results suggest that within each environment, efficiency is lower under a static format, and when the number of final states is larger. In the nonpooled dynamic task, which allows for path-dependent strategies, we find that efficiency losses are driven by a form of stop-loss strategy.

Keywords: Dynamic Portfolio Allocation, Efficiency, Laboratory Experiments

JEL Classification: C91, D81, G11

Suggested Citation

Magnani, Jacopo and Rabanal, Jean Paul and Rud, Olga and Wang, Yabin, Efficiency of dynamic portfolio choices: An experiment (February 4, 2021). Available at SSRN: https://ssrn.com/abstract=3564208 or http://dx.doi.org/10.2139/ssrn.3564208

Jacopo Magnani

Norwegian University of Science and Technology

Klæbuveien 72
Trondheim, 7030
Norway
46386027 (Phone)

Jean Paul Rabanal

University of Stavanger ( email )

PB 8002
Stavanger, 4036
Norway

Olga Rud (Contact Author)

University of Stavanger ( email )

PB 8002
Stavanger, 4036
Norway

Yabin Wang

Norwegian University of Science and Technology ( email )

Klæbuveien 72
Trondheim, 7030
Norway

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