Time Diversification in Pension Savings

35 Pages Posted: 24 Feb 2006

See all articles by Anders Karlsson

Anders Karlsson

Stockholm University - Department of Corporate Finance

Date Written: February 15, 2006


We take a closer look at how investment horizon affects risk taking, often referred to as the time-diversification controversy. We use data on individuals' choices in the Swedish pension system. Theoretically, if returns are serially uncorrelated, investors do not have human capital, and investors have constant relative risk aversion then investment horizon should not influence asset allocation. This theory causes some academics to explain the positive correlation between investment horizon and risk exposure by generational differences in human capital, not the investment horizon per se. Our empirical analysis shows that portfolio risk significantly declines with age in a statistical context. This behavior is still evident after controlling for alternative explanations related to human capital and difficult to reject in an economic context.

Keywords: Pension Savings, Asset allocation

Suggested Citation

Karlsson, Anders, Time Diversification in Pension Savings (February 15, 2006). Available at SSRN: https://ssrn.com/abstract=884412 or http://dx.doi.org/10.2139/ssrn.884412

Anders Karlsson (Contact Author)

Stockholm University - Department of Corporate Finance ( email )

School of Business
SE-106 91 Stockholm
+46 8 162180 (Phone)
+46 8 153054 (Fax)

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