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The notion that above average returns tend to offset below average returns over long time horizons. It does not necessarily follow, however, that time diversification reduces risk. Paul Samuelson and others have shown that although the likelihood of a loss, given investment in a risky asset, decreases with time, the potential magnitude of a loss increases with time if risky asset returns are random. If risky asset returns mean revert, time does reduce risk for investors with a utility function that is more risk averse than a log wealth utility function.
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