For a long investment period investment consultants usually recommend a larger proportion of risky assets in investors’ portfolios than for a short investment horizon. In an experiment we examine the effect of different investment horizons on investors’ risk behavior. We are interested both in the participants’ risk perception and in their asset allocation behavior. We find significant underestimations of long-term risks that lead to a higher proportion of risky assets in the long-term portfolios. Our data show, that the belief in mean reversion is a potential explanation for this behavior.
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