tag:blogger.com,1999:blog-7905515.post5871017260827020934..comments2024-03-14T11:09:32.759-05:00Comments on Falkenblog: Felix Salmon Highlights Financial InconsistencyEric Falkensteinhttp://www.blogger.com/profile/07243687157322033496noreply@blogger.comBlogger5125tag:blogger.com,1999:blog-7905515.post-90145296661226268232010-05-20T18:02:43.455-05:002010-05-20T18:02:43.455-05:00Peter: well, the average holding period for indivi...Peter: well, the average holding period for individuals and funds is about a year, though there are lots at much higher and lower horizons. Still, prospective volatility does vary by a large factor (say, 2), and long term vol forecasts are highly correlated with the VIX, and they correlation with expected returns is negative.Eric Falkensteinhttps://www.blogger.com/profile/07243687157322033496noreply@blogger.comtag:blogger.com,1999:blog-7905515.post-10954315085548227272010-05-20T16:39:31.731-05:002010-05-20T16:39:31.731-05:00VIX isn't a good measure of volatility for an ...VIX isn't a good measure of volatility for an ordinary investor who plans to hold investments for years, not a month or two. A multi-year estimate of volatility would fluctuate a lot less, and the realized returns might bear some resemblance to what a smart person would expect.Peter McCluskeyhttps://www.blogger.com/profile/01099115848869427402noreply@blogger.comtag:blogger.com,1999:blog-7905515.post-42278190775072803042010-05-19T01:43:46.147-05:002010-05-19T01:43:46.147-05:00"High risk investments, on an average, should..."High risk investments, on an average, should yield higher returns."<br /><br />The fallacy lies in the abstraction (on an average) being interpreted as true in every high-risk investment.<br /><br />If you invest in 1000 perceived high-risk instruments as well as 1000 perceived low-risk instruments, the payoff on the 1000 high-risk instruments will be better than the 1000 low-risk instrument.<br /><br />Many high-risk instruments will fail you miserably. Many low-risk instruments will surprise you (with good returns).<br /><br />An average investor's thinking that EVERY high-risk instrument will yield a higher return is foolish.Nathttps://www.blogger.com/profile/13933440155458387893noreply@blogger.comtag:blogger.com,1999:blog-7905515.post-83431433748368195972010-05-18T10:56:37.982-05:002010-05-18T10:56:37.982-05:00oops, sign error. tx.oops, sign error. tx.Eric Falkensteinhttps://www.blogger.com/profile/07243687157322033496noreply@blogger.comtag:blogger.com,1999:blog-7905515.post-6712705892945743812010-05-18T10:36:15.951-05:002010-05-18T10:36:15.951-05:00"Steve Sharpe and Gene Amromin actually got a..."Steve Sharpe and Gene Amromin actually got around this objection by looking at survey data, and found that in questionnaires investors tended to have higher return expectations when they forecast volatility as being relatively low, and lower return expectations when they forecast lower volatility. Exactly the opposite of what they should be thinking.."<br /><br />Did you mean "higher volatility" in the next to last sentence?maynardGkeynesnoreply@blogger.com