On investing in the long run when stock returns are mean-reverting

Antoine Giannetti

Applied Financial Economics, 2005, vol. 15, issue 14, 1037-1040

Abstract: How risky is it to invest in the stock market in the long run? Under the random walk hypothesis for stock returns, it has been shown that risk is increasing with the investment time horizon. Using the insights of variance ratios literature, this paper shows that, if stock returns are mean-reverting in the long run, then such a conclusion may be reversed. As a practical consequence, portfolio insurance cost would decrease with time horizon.

Date: 2005
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DOI: 10.1080/09603100500120373

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