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Richard Lu, Chen-Chen Yang and Wing-Keung Wong ()
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Richard Lu: Department of Risk Management and Insurance, Feng Chia University, Seatwen, Taichung 40724, Taiwan, R. O. China
Chen-Chen Yang: Ph.D. Program of Finance, Feng Chia University, Seatwen, Taichung 40724, Taiwan, R. O. China

Annals of Financial Economics (AFE), 2018, vol. 13, issue 03, 1-15

Abstract: Time diversification which is the idea of there being less riskiness over longer investment horizons is examined in this paper. Different from previous studies, this paper contributes to the literature by using the Aumann and Serrano index as a risk measure to examine whether there is any time diversification in stock investment by using the daily returns of S&P 500, S&P 400, and NASDAQ with both short and long holding periods and by using the block bootstrapping technique in the simulation. The advantage of using the Aumann and Serrano index as a risk measure is that it satisfies the monotonicity with respect to stochastic dominance while most of other risk measures do not. From the returns of short (long) holding periods, we conclude that, in general, the riskiness of the shorter (longer) period is statistically greater than that of the longer (shorter) period. Our findings reject the hypothesis of no time diversification effect and reject the geometric Brownie motion process for the returns of different holding periods. The results could be due to short- and medium-term momentums and long-term contrarian. Our findings are useful to academics, investors, and policy makers in their decision-making related to time diversification.

Keywords: Time diversification; economic index of riskiness; investment horizon (search for similar items in EconPapers)
Date: 2018
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Working Paper: Time Diversification: Perspectives from the Economic Index of Riskiness (2018) Downloads
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DOI: 10.1142/S2010495218500112

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