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Who should sell stocks?
Author(s) -
Guasoni Paolo,
Liu Ren,
MuhleKarbe Johannes
Publication year - 2019
Publication title -
mathematical finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.98
H-Index - 81
eISSN - 1467-9965
pISSN - 0960-1627
DOI - 10.1111/mafi.12179
Subject(s) - dividend , economics , portfolio , transaction cost , monetary economics , investment (military) , consumption (sociology) , microeconomics , preference , cash , financial economics , econometrics , business , finance , social science , sociology , politics , political science , law
Never selling stocks is optimal for investors with a long horizon and a realistic range of preference and market parameters, if relative risk aversion, investment opportunities, proportional transaction costs, and dividend yields are constant. Such investors should buy stocks when their portfolio weight is too low and otherwise hold them, letting dividends rebalance to cash over time rather than selling. With capital gains taxes, this policy outperforms both static buy‐and‐hold and dynamic rebalancing strategies that account for transaction costs. Selling stocks becomes optimal if either their target weight is low or intermediate consumption is substantial.