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Optimal Investment Horizons for Stocks and Markets

A. Johansen·I. Simonsen·M. H. Jensen
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Abstract

The inverse statistics is the distribution of waiting times needed to achieve a predefined level of return obtained from (detrended) historic asset prices \cite{optihori,gainloss}. Such a distribution typically goes through a maximum at a time coined the {\em optimal investment horizon}, $τ^*_ρ$, which defines the most likely waiting time for obtaining a given return $ρ$. By considering equal positive and negative levels of return, we reported in \cite{gainloss} on a quantitative gain/loss asymmetry most pronounced for short horizons. In the present paper, the inverse statistics for 2/3 of the individual stocks presently in the DJIA is investigated. We show that this gain/loss asymmetry established for the DJIA surprisingly is {\em not} present in the time series of the individual stocks nor their average. This observation points towards some kind of collective movement of the stocks of the index (synchronization).

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BibTeXRIS

A. Johansen, I. Simonsen, M. H. Jensen. 2006-01-02. Optimal Investment Horizons for Stocks and Markets. https://doi.org/10.1016/j.physa.2006.04.030

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