An Empirical Study on Asset Returns and Risks in the Long Run:The Case of Taiwan
Date Issued
2010
Date
2010
Author(s)
Huang, Tzu-Hua
Abstract
There are two main purposes in this study. One is empirically analyzing the risks and returns of stocks, government bonds, gold, real estate, and time deposit in Taiwan over various holding periods to compare their performances. The other one is constructing an international portfolio of TAIEX, DJIA, Nikkei 225, and FTSE 100, finding the optimal portfolio, and comparing the performance of investing internationally to that of investing domestically to examine whether international portfolios can dominate domestic portfolios. To incorporate the effect of cash dividend reinvestment into TAIEX and estimate the value of real estate, it took a lot of time and efforts for us to collect and organize the historical data of cash dividend and real estate.
The three major findings of this study are as follows:
I. From 1967 to 2008, the volatility of each asset decreases as investment horizon increases, which verifies the time diversification effect. And the volatility of stocks declines most rapidly in the long run.
II. The Sharp Indices of stocks in each holding period are the highest and increase dramatically with investment horizon extending. This implies that stock is the optimal investment regardless of holding interval and investors can invest in stocks with buy-and-hold strategy in the long run to earn long-term profits.
III. Measured by the Sharp Index, the performance of international portfolios is better than that of domestic portfolios. Investors can construct portfolios with international investments according to their risk preference.
Subjects
holding period
Risk-Return Trade-off
modern portfolio theory
diversification
international portfolio
efficient frontier
Sharp Index
Type
thesis
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