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Primary Article

Asset Return Distributions and the Investment Horizon

Haim Levy and Ran Duchin
The Journal of Portfolio Management Spring 2004, 30 (3) 47-62; DOI: https://doi.org/10.3905/jpm.2004.412319
Haim Levy
Teaches at the Jerusalem School of Business Administration at the Hebrew University of Jerusalem.
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  • For correspondence: mshlevy@msccc.huji.ac.il
Ran Duchin
Teaches at the Marshall School of Business at the University of Southern California.
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  • For correspondence: duchin@usc.edu
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Abstract

The optimal investment decision rule and asset equilibrium prices depend on the assumed distribution of rates of return. And empirical distributions vary with the assumed time interval (investment horizon). The authors test the goodness of fit of 11 theoretical distributions including the normal distribution, fat-tailed distributions, and skewed distributions for investment horizons ranging from one day to four years. The normal distribution performs poorly, and never provides the best fit for any time interval. In the 330 goodness of fit tests reported, at least one distribution of the 11 always fits the data better than the normal distribution. As the logistic distribution fits the data best for investment horizons of up to one year, analysis focuses on this distribution and its implications for equilibrium asset prices.

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The Journal of Portfolio Management
Vol. 30, Issue 3
Spring 2004
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Asset Return Distributions and the Investment Horizon
Haim Levy, Ran Duchin
The Journal of Portfolio Management Apr 2004, 30 (3) 47-62; DOI: 10.3905/jpm.2004.412319

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Asset Return Distributions and the Investment Horizon
Haim Levy, Ran Duchin
The Journal of Portfolio Management Apr 2004, 30 (3) 47-62; DOI: 10.3905/jpm.2004.412319
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