November 2020
Intermediate to advanced
256 pages
8h 12m
English
book
Beyond Diversification: What Every Investor Needs to Know About Asset Allocation
by Sebastien Page
Content preview from Beyond Diversification: What Every Investor Needs to Know About Asset Allocation
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11
Fat Tails and Something About the Number of Particles in the Universe
We must accept that the normal distribution is just an approximation of the true distribution.
–JPP
EARLIER I STATED THAT HIGHER MOMENTS MATTER, BUT they are more difficult to predict than volatility. This issue merits further discussion. If returns are normally distributed (or Gaussian, i.e., part of a family of bell-shaped probability distributions), we can approximate exposure to loss based on volatility. If not, we’re likely to underestimate risk. By how much is the key question.
In our study, we estimated the persistence in risk measures, but we didn’t estimate the size of measurement errors. Volatility is too crude a risk measure. Most investors and academics agree ...
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I'm always learning. So when I got on to O'Reilly, I was like a kid in a candy store. There are playlists. There are answers. There's on-demand training. It's worth its weight in gold, in terms of what it allows me to do.