Abstract

http://ssrn.com/abstract=1987562
 


 



The Illusion of Thin-Tails Under Aggregation


Nassim Nicholas Taleb


New York University-Poly School of Engineering

George A. Martin


affiliation not provided to SSRN

January 18, 2012

Journal of Investment Management, Forthcoming

Abstract:     
It is assumed that while portfolio theory fails with daily returns, that it would work with yearly returns, an standard argument recently repeated in Treynor (2011). This paper debunks the confusion that daily returns, when non-Gaussian but with finite variance can aggregate to thin tails. Alas, portfolio theory fails in both the short and the long run. The central limit theorem operates too slowly for economic data for us to use it and take portfolio theory with any degree of seriousness. The point is illustrated with a Monte Carlo simulation.

Number of Pages in PDF File: 4

Keywords: Risk, Portfolio Theory, Treynor, Markowitz

Accepted Paper Series





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Date posted: January 19, 2012 ; Last revised: November 16, 2012

Suggested Citation

Taleb, Nassim Nicholas and Martin, George A., The Illusion of Thin-Tails Under Aggregation (January 18, 2012). Journal of Investment Management, Forthcoming. Available at SSRN: http://ssrn.com/abstract=1987562 or http://dx.doi.org/10.2139/ssrn.1987562

Contact Information

Nassim Nicholas Taleb (Contact Author)
New York University-Poly School of Engineering ( email )
Brooklyn, NY 11201
United States

George A. Martin
affiliation not provided to SSRN ( email )
Feedback to SSRN


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