THE CAPITAL ASSET PRICING MODEL AND THE INVESTMENT HORIZON: COMMENT.

The article presents a comments of authors on the article "The Capital Asset Pricing Model and the Investment Horizon," by David Levhari and Haim Levy. In their article, Levhari and Levy have shown that the systematic risk of defensive stocks tends to decline while that for aggressive stocks tends to increase with increases in the investment horizon. They illustrated the relationship between the systematic risk and the investment horizon with ten stocks that were undoubtedly defensive and ten stocks that were clearly aggressive. These 20 stocks are selected from a sample of 101 stocks traded on the New York Stock Exchange for the period 1948-1968. The purpose of this comment is to investigate the validity of Levhari and Levy's findings for a more comprehensive sample of 1,115 stocks. We find that Levhari and Levy's conclusions do not hold when the larger sample is used. Specifically, we show that changes in the value of a stock's systematic risk induced by a lengthening of the investment horizon follow a random walk. Changes in a stock's systematic risk seem to conform to a binomial distribution rather than exhibit a tendency to either rise or fall in response to an increase or a decrease in the investment horizon.