Efficiency of dynamic portfolio choices: An experiment

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..

Publication
In Review of Financial studies (Accepted)
Date
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