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The Time Diversification Puzzle: A Survey

Author

Listed:
  • Bianchi Robert J.
  • Drew Michael E.
  • Walk Adam N.

Abstract

Since Samuelson’s (1969) theoretical proof that risk and time are unrelated, a half century of debate and controversy has ensued, leaving time diversification as one of the most enduring puzzles of modern finance. The most conspicuous aspect of the debate is the questionable assumptions that underlie much of the analysis. Thus we are left with an unsatisfying debate conducted in a paradigm where terminal wealth is usually a function only of returns, and where time-weighted measures are assumed to adequately evaluate performance. This paper reviews the major streams in the time diversification literature and argues that more realistic analysis using defensible assumptions is likely to lead to better prescriptions for improved retirement investing.

Suggested Citation

Handle: RePEc:vrs:finprj:v:2:y:2016:i:2:p:12-48:n:1005
DOI: 10.2478/fprj-2016-0009
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Keywords

Time diversification; Risk; Investment horizon;
All these keywords.

JEL classification:

  • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
  • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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