Zugang Liu, Jia Wang

Time, risk, and investment styles

Introduction

Time, risk, and investment styles. Explore how equity investment risk changes across time horizon and investment styles, incorporating investor risk tolerance. Discover safest styles for risk-averse and aggressive investors.

Abstract

This paper investigates the changing nature of equity investment risk across time horizon, an important issue in asset allocation decisions. We extend the literature by concentrating on different investment styles and by incorporating investors' risk tolerance into the analysis. Our results show that for more risk-averse investors, the large-cap growth style is the safest style over shorter investment horizons, while a small-cap value style over longer investment horizons. However, for more aggressive investors, the small-cap value style is always the safest regardless of the investment horizons. In addition, the small-growth style is the most risky across all investment horizons for both types of investors. Those results will help individual investors determine the best suited investment styles given their investment horizon and risk preferences. 

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