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#### Article: Two rationales behind the 'buy-and-hold or sell-at-once' strategy

Title Two rationales behind the 'buy-and-hold or sell-at-once' strategy Yam, SCPYung, SPZhou, W Binomial Tree ModelMartingalesOptimal StoppingP-Random Walk 2009 Applied Probability Trust. The Journal's web site is located at http://www.shef.ac.uk/uni/companies/apt/ap.html Journal Of Applied Probability, 2009, v. 46 n. 3, p. 651-668 How to Cite? The trading strategy of 'buy-and-hold for superior stock and sell-at-once for inferior stock', as suggested by conventional wisdom, has long been prevalent in Wall Street. In this paper, two rationales are provided to support this trading strategy from a purely mathematical standpoint. Adopting the standard binomial tree model (or CRR model for short, as first introduced in Cox, Ross and Rubinstein (1979)) to model the stock price dynamics, we look for the optimal stock selling rule(s) so as to maximize (i) the chance that an investor can sell a stock precisely at its ultimate highest price over a fixed investment horizon [0, T ]; and (ii) the expected ratio of the selling price of a stock to its ultimate highest price over [0, T ]. We show that both problems have exactly the same optimal solution which can literally be interpreted as 'buy-and-hold or sell-at-once' depending on the value of p (the going-up probability of the stock price at each step): whenp > 1/2 , selling the stock at the last time step N is the optimal selling strategy; when p = 1/2 , a selling time is optimal if the stock is sold either at the last time step or at the time step when the stock price reaches its running maximum price; and when p < 1/2 , time 0, i.e. selling the stock at once, is the unique optimal selling time. © 2009 Applied Probability Trust. http://hdl.handle.net/10722/156244 0021-90022015 Impact Factor: 0.6652015 SCImago Journal Rankings: 0.742 References in Scopus

DC FieldValueLanguage
dc.contributor.authorYam, SCPen_US
dc.contributor.authorYung, SPen_US
dc.contributor.authorZhou, Wen_US
dc.date.accessioned2012-08-08T08:41:00Z-
dc.date.available2012-08-08T08:41:00Z-
dc.date.issued2009en_US
dc.identifier.citationJournal Of Applied Probability, 2009, v. 46 n. 3, p. 651-668en_US
dc.identifier.issn0021-9002en_US
dc.identifier.urihttp://hdl.handle.net/10722/156244-
dc.description.abstractThe trading strategy of 'buy-and-hold for superior stock and sell-at-once for inferior stock', as suggested by conventional wisdom, has long been prevalent in Wall Street. In this paper, two rationales are provided to support this trading strategy from a purely mathematical standpoint. Adopting the standard binomial tree model (or CRR model for short, as first introduced in Cox, Ross and Rubinstein (1979)) to model the stock price dynamics, we look for the optimal stock selling rule(s) so as to maximize (i) the chance that an investor can sell a stock precisely at its ultimate highest price over a fixed investment horizon [0, T ]; and (ii) the expected ratio of the selling price of a stock to its ultimate highest price over [0, T ]. We show that both problems have exactly the same optimal solution which can literally be interpreted as 'buy-and-hold or sell-at-once' depending on the value of p (the going-up probability of the stock price at each step): whenp > 1/2 , selling the stock at the last time step N is the optimal selling strategy; when p = 1/2 , a selling time is optimal if the stock is sold either at the last time step or at the time step when the stock price reaches its running maximum price; and when p < 1/2 , time 0, i.e. selling the stock at once, is the unique optimal selling time. © 2009 Applied Probability Trust.en_US
dc.languageengen_US
dc.publisherApplied Probability Trust. The Journal's web site is located at http://www.shef.ac.uk/uni/companies/apt/ap.htmlen_US
dc.relation.ispartofJournal of Applied Probabilityen_US
dc.subjectBinomial Tree Modelen_US
dc.subjectMartingalesen_US
dc.subjectOptimal Stoppingen_US
dc.subjectP-Random Walken_US
dc.titleTwo rationales behind the 'buy-and-hold or sell-at-once' strategyen_US
dc.typeArticleen_US
dc.identifier.emailYung, SP:spyung@hkucc.hku.hken_US
dc.identifier.authorityYung, SP=rp00838en_US
dc.identifier.doi10.1239/jap/1253279844en_US
dc.identifier.scopuseid_2-s2.0-70350077318en_US
dc.relation.referenceshttp://www.scopus.com/mlt/select.url?eid=2-s2.0-70350077318&selection=ref&src=s&origin=recordpageen_US
dc.identifier.volume46en_US
dc.identifier.issue3en_US
dc.identifier.spage651en_US
dc.identifier.epage668en_US
dc.publisher.placeUnited Kingdomen_US
dc.identifier.scopusauthoridYam, SCP=35112610600en_US
dc.identifier.scopusauthoridYung, SP=7006540951en_US
dc.identifier.scopusauthoridZhou, W=35312980700en_US