Time Diversification and Risk Management : A Probablistic Approach

By: Material type: ArticleArticleLanguage: ENG Series: ; 13Publication details: Oct 2007 0Edition: 10Description: 16-28 PpSubject(s): DDC classification:
  •  Gho
Online resources: Summary: This study reveals that time diversification is not a strategy for risk management at all. At the end of the longer time horizons, age-old experienced gainers discover that they hold only a basket of inferior stocks or a few performing stocks or both. This paper contends that time cannot make a below-performing stock to be a performing one only by way of aging with time horizons. In an efficient market, with expanding holding periods only, one cannot improve the portfolio size over the average portfolio size for the actual and potential probable losses as well.
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This study reveals that time diversification is not a strategy for risk management at all. At the end of the longer time horizons, age-old experienced gainers discover that they hold only a basket of inferior stocks or a few performing stocks or both. This paper contends that time cannot make a below-performing stock to be a performing one only by way of aging with time horizons. In an efficient market, with expanding holding periods only, one cannot improve the portfolio size over the average portfolio size for the actual and potential probable losses as well.

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