Time Diversification Redux

11 Pages Posted: 22 Sep 2017

See all articles by Michael Aked

Michael Aked

Research Affiliates, LLC

Amie Ko

Research Affiliates

Date Written: August 1, 2017

Abstract

Conventional risk measures may not accurately describe the volatility investors actually experience, especially for portfolios servicing their retirement spending needs. Return volatility rises as its calculated holding period nears 1 year and falls as it lengthens to 10 years. Lower volatility at longer holding periods implies that longer-term mean reversion exists. A portfolio achieves the greatest extra-return benefit by rebalancing over the holding period of highest volatility. Time diversification is helpful, up until long-term uncertainty about the value of reinvested cash flows from dividends leads to rising volatility.

Keywords: volatility, time diversification

JEL Classification: G10

Suggested Citation

Aked, Michael and Ko, Amie, Time Diversification Redux (August 1, 2017). Available at SSRN: https://ssrn.com/abstract=3040967 or http://dx.doi.org/10.2139/ssrn.3040967

Michael Aked (Contact Author)

Research Affiliates, LLC ( email )

620 Newport Center Dr
Suite 900
Newport Beach, CA 92660
United States

Amie Ko

Research Affiliates ( email )

620 Newport Center Dr
Suite 900
Newport Beach, CA 92660
United States

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