Stocks,bonds and the investment horizon: a test of time diversification on the French market

Abstract

In this paper, we investigate the relative performance of stocks and bonds for various investment horizons on the French market. We use a new matched block bootstrap approach to take account of estimation risk. Furthermore, in the light of non-normality of returns, we use two different risk approaches as inputs in portfolio optimization: the traditional variance, and a downside risk measure, the semi-variance. Our results suggest that an investor should avoid bonds in the long run due to the time diversification effect.