The findings of this paper provide some support for the practitioner view that equity is a long-term investment. That is, there is evidence that equity represents a (significantly) more desirable investment over a ten-year investment horizon than over a one-month investment horizon. However, the results vary considerably according to the definition of time diversification adopted and the assumptions made about investor behaviour. In particular, the optimal portfolio time diversification results are not robust to various levels of risk tolerance or various utility functions. There also appear to be different time diversification effects in different economies. For instance, we find that there is more evidence of time diversification in the US market than in the UK market when the analysis is ex post in nature. © Blackwell Publishers Ltd 2001.