Asset Choice And Time Diversification Benefits

Abstract

The issue of time diversification has been controversial. While some findings support time diversification, others do not. For example, Hodges, Taylor and Yoder (1997) find bonds outperform stocks, but Mukherji (2002) finds stocks provide time diversification benefits. This paper investigates whether the differences in the findings of Hodges, Taylor and Yoder (1997) and Mukherji (2002) stem from methodological variation. Results indicate that the differences in the procedure used to estimate the holding period returns may in fact be the reason for the difference in findings. Using a procedure to estimate holding period returns that is similar to Hodges, Taylor and Yoder (1997), and a performance measure that is similar to Mukherji (2002), we do not find that stocks provide time diversification benefits.