The recommendation that investors with long investment horizons tilt their portfolios toward stocks is commonplace. We used a nonparametric bootstrap approach to investigate whether in a mean-variance-efficient portfolio, the weights for U.S. stocks and U.S. T-bills vary in a systematic manner with investment horizon. This approach allowed us to analyze the impact of estimation risk on the optimal weights of stocks and fixed-income securities. The results show that an investor can gain from time diversification: The weights for stocks in an efficient portfolio were significantly larger for long investment horizons than a one-year horizon.
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