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Who gains and who loses on stock markets? Risk preferences and timing matter

Abstract : This paper uses an agent-based multi-asset model to examine the effect of risk preferences and optimal rebalancing frequency on performance measures while tracking profit and risk-adjusted return. We focus on the evolution of portfolios managed by heterogeneous mean-variance optimizers with a quadratic utility function under different market conditions. We show that patient and risk-averse agents are able to outperform aggressive risk-takers in the long-run. Our findings also suggest that the trading frequency determined by the optimal tolerance for the deviation from portfolio targets should be derived from a tradeoff between rebalancing benefits and rebalancing costs. In a relatively calm market, the absolute range of 6% to 8% and the complete-way back rebalancing technique outperforms others. During particular turbulent periods, however, none of the existing rebalancing techniques improves tax-adjusted profits and risk-adjusted returns simultaneously.
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https://hal-cnam.archives-ouvertes.fr/hal-03605468
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Submitted on : Friday, March 11, 2022 - 9:47:19 AM
Last modification on : Wednesday, September 28, 2022 - 5:59:40 AM

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Iryna Veryzhenko. Who gains and who loses on stock markets? Risk preferences and timing matter. Intelligent Systems in Accounting, Finance and Management, Wiley, 2021, 28 (2), pp.143-155. ⟨10.1002/isaf.1493⟩. ⟨hal-03605468⟩

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