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Investment performance and holding periods: An investigation of the major UK asset classes

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  • Lakshman Alles

    (School of Economics and Finance, Curtin University of Technology)

  • Louis Murray

Abstract

The objective of this article is to offer further investigation of the practice of investors to concentrate their investments in cash or bonds as they grow older, and their investment horizons decrease. To provide evidence in this regard, we assess the impact of investment horizon by computing returns, risks and end-of-period wealth distributions of the major UK asset classes, over increasing time horizons. We use monthly observations between 1963 and 2005, and our assessment is based on a block bootstrapping technique. This methodology offers an improvement on previous studies, as it facilitates the retention of past time series patterns of returns. It is likely that these patterns will continue into the future. Results show that investment outcomes at short horizons are different to outcomes at longer horizons. Evidence is provided in favour of time diversification, up to a 5-year horizon. Further, we find that the probability of ending with a shortfall in end-of-period wealth decreases as the holding period lengthens. We also find that higher risk asset classes outperform lower risk asset classes and have higher end-of-period wealth for longer holding periods.

Suggested Citation

  • Lakshman Alles & Louis Murray, 2009. "Investment performance and holding periods: An investigation of the major UK asset classes," Journal of Asset Management, Palgrave Macmillan, vol. 10(5), pages 280-292, December.
    • Handle: RePEc:pal:assmgt:v:10:y:2009:i:5:d:10.1057_jam.2009.16
    DOI: 10.1057/jam.2009.16
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    References listed on IDEAS

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    1. Andrew W. Lo, A. Craig MacKinlay, 1988. "Stock Market Prices do not Follow Random Walks: Evidence from a Simple Specification Test," The Review of Financial Studies, Society for Financial Studies, vol. 1(1), pages 41-66.
    2. Norman Strong & Nicholas Taylor, 2001. "Time Diversification: Empirical Tests," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 28(3‐4), pages 263-302, April.
    3. Norman Strong & Nicholas Taylor, 2001. "Time Diversification: Empirical Tests," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 28(3‐4), pages 263-302, April.
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    Cited by:

    1. Annika Hegemann & Angela Kunoth & Kristina Rupp & Caren Sureth-Sloane, 2017. "Hold or sell? How capital gains taxation affects holding decisions," Review of Managerial Science, Springer, vol. 11(3), pages 571-603, July.
    2. Jia Wang, 2011. "Impact of investment horizon on the performance of value versus growth styles and style allocation," Journal of Asset Management, Palgrave Macmillan, vol. 12(6), pages 438-446, December.

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