Portfolio Composition and the Investment Horizon Revisited

Abstract

Many articles show how portfolio composition depends on the investment horizon. Typically, they conclude that portfolio composition changes in a simple way as the investment horizon lengthens.

Gunthorpe and Levy [1994] is a superior example. It presents the case for a simple relationship clearly, and the authors express concern that the relationship may not always be as simple as they represent it.

The authors' concern is well-founded. There is no reliable simple relationship. The real message is that portfolio composition depends on the investment horizon, not how. This article builds on the Gunthorpe and Levy work to show how treacherous is any simple characterization of the relationship.

Keywords: investment horizon, portfolio selection, risk and the investment horizon

JEL Classification: G00, G10, G11, G12