Time Diversification in Developed and Emerging Markets

33 Pages Posted: 12 Feb 2008 Last revised: 10 May 2009

See all articles by Hamish D. Anderson

Hamish D. Anderson

Massey University - School of Economics and Finance

Christopher B. Malone

School of Economics and Finance, Massey University

Ben R. Marshall

Massey University - School of Economics and Finance

Date Written: February 12, 2008

Abstract

Time in the market substantially reduces the risk of loss resulting from holding both stocks and bonds. By focusing on a downside VaR risk proxy in 25 emerging and 24 developed markets we show that the downside risk of both stocks and bonds is greatly reduced as the investment horizon is increased beyond 10 years, but the risk reduction is more pronounced in stocks. We also show that emerging markets have substantially greater downside risk than developed markets. The results suggest that investors should be very aware of their investment horizon when making asset allocation decisions, particularly into stocks in emerging markets.

Keywords: stocks, bonds, value at risk, VaR, investment horizon, time diversification, time in the market, emerging markets

JEL Classification: G14, G15

Suggested Citation

Anderson, Hamish D. and Malone, Christopher B. and Marshall, Ben R., Time Diversification in Developed and Emerging Markets (February 12, 2008). Available at SSRN: https://ssrn.com/abstract=1092171 or http://dx.doi.org/10.2139/ssrn.1092171

Hamish D. Anderson

Massey University - School of Economics and Finance ( email )

New Zealand

Christopher B. Malone

School of Economics and Finance, Massey University ( email )

Private Bag 11-222
Palmerston North, 30974
New Zealand

Ben R. Marshall (Contact Author)

Massey University - School of Economics and Finance ( email )

Private Bag 11-222
Palmerston North, 30974
New Zealand
64 6 350 5799 (Phone)
64 6 350 5651 (Fax)

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