Bridge over ocean
1 September 1998 Financial Analysts Journal Volume 54, Issue 5

Risk, Rationality, and Time Diversification

  1. Robert A. Olsen
  2. Muhammad Khaki

The validity of the concept of time diversification is the subject of long-running debate. Supporters of the concept argue that risk decreases as investment horizon increases; detractors suggest that the concept is false on the face of it. We argue that time diversification is consistent both theoretically and empirically with current conceptions of risk and rationality, and we also note the implications of changes in investment horizon for stock market behavior.

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