This leads to a finding from behavioural economics, that branch of economics which has had some success understanding why not all people act rationally - indeed why in some circumstances so many don't that the traditional economics assumption of rational behavior 'on average' breaks down. That finding shows that long term, the returns from stocks are far higher than those from bonds - higher than the greater volatility of stock returns would call for. The reason is that investors hate losses far more than they enjoy gains. So they demand higher long term returns to compensate for their dread of losses. Combining the two results helps resolve the puzzle.
People keep timing the market despite the fact it's pointless because of their allergy to losses.
In New Zealand the tax laws tend to discourage this behaviour - at least amongst those who have to pay tax if they trade too often. This site was last updated on Wednesday, 22nd August 2001. 1999-2001 Infometrics Ltd.