Swiss Security Return Performance and the Investment Horizon

Abstract

Investors often hold foreign securities in order to diversify their portfolios. This raises the issue of whether there are unique risks associated with long-term investments in non-domestic securities. The authors investigate the empirical relationship between the Sharpe ratio and the investment horizon for portfolios of Swiss stocks and bonds and then compare these results to U.S. stock and bond portfolios. Sharpe ratios are calculated for holding periods of one to 25 years under the contrasting assumptions that returns are independent or auto-correlated. The results for Swiss securities are very similar to those for U.S. securities. Under independent returns, bonds outperform stocks for longer time horizons, while for auto-correlated returns, equities outperform bonds for all holding periods. <b>TOPICS:</b>Portfolio construction, developed, performance measurement