Abstract

http://ssrn.com/abstract=1420356
 
 

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Risk and Return in General: Theory and Evidence


Eric G. Falkenstein


Pine River Capital Management

June 15, 2009


Abstract:     
Empirically, standard, intuitive measures of risk like volatility and beta do not generate a positive correlation with average returns in most asset classes. It is possible that risk, however defined, is not positively related to return as an equilibrium in asset markets. This paper presents a survey of data across 20 different asset classes, and presents a model highlighting the assumptions consistent with no risk premium. The key is that when agents are concerned about relative wealth, risk taking is then deviating from the consensus or market portfolio. In this environment, all risk becomes like idiosyncratic risk in the standard model, avoidable so unpriced.

Number of Pages in PDF File: 150

Keywords: Risk and Return, CAPM, APT, Asset Pricing Theory, Utility Theory

JEL Classification: D01, D81, G11, G12

working papers series





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Date posted: June 18, 2009 ; Last revised: November 22, 2011

Suggested Citation

Falkenstein, Eric G., Risk and Return in General: Theory and Evidence (June 15, 2009). Available at SSRN: http://ssrn.com/abstract=1420356 or http://dx.doi.org/10.2139/ssrn.1420356

Contact Information

Eric G. Falkenstein (Contact Author)
Pine River Capital Management ( email )
601 Calson Parkway, Suite 330
Minnetonka, MN 55347
United States
6123091588 (Phone)
6123091588 (Fax)
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