Stocks, Bonds, Risk, and the Holding Period:
An International Perspective

Abstract

The time diversification controversy, one of the most contentious issues in asset allocation, refers to the relationship between risk and the holding period. One of the aspects of this controversy is related to whether stocks become more or less risky than bonds as the holding period lengthens. To be sure, this question does not have an unequivocal answer. But the bulk of the comprehensive evidence analyzed in this article, spanning over 19 countries and 110 years, suggests that time does diversify risk. In other words, although not all results point in exactly the same direction, the overall picture that emerges is that as the holding period lengthens stocks do become less risky than bonds. This conclusion follows from an analysis based on two ways of assessing returns and several ways of assessing risk.