Assets relative risk for long-term investors

Christian Gollier, Toulouse School of Economics (LERNA), WP TS&W n. 14/07

We show that, for all developed countries for which data are available, the relative riskiness of equity compared to bonds and bills goes down when the investment horizon increases. In particular, VAR setups show that this effect is very strong. This fact implies that investors with a longer investment horizon should invest relatively more in equity. These results are opposite to those presented by Lukassen and Pršopper (2007). They shed some critical light on the proposed Solvency II reform, which would force life insurers to inefficiently rebalance their portfolio towards safer assets.

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