Beta, the Treynor ratio, and long-run investment horizons

Charles Hodges, Walton Taylor and James Yoder

Applied Financial Economics, 2003, vol. 13, issue 7, 503-508

Abstract: Beta and Treynor ratios are computed for portfolios of small stocks, large stocks, and bonds for holding periods of 1 to 30 years. For both the stock and bond portfolios, beta, and the Treynor ratio change substantially with the holding period. Furthermore, the relative Treynor rankings of the portfolios change. Therefore, betas and Treynor ratios cannot be calculated independently of the intended investment horizon. Investors with long-run investment horizons must interpret performance parameters obtained from investment advisory services with due consideration for horizon effects.

Date: 2003
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DOI: 10.1080/0960310022000016622

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