Abstract

http://ssrn.com/abstract=970480
 
 

References (4)



 
 

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We Don't Quite Know What We are Talking About When We Talk About Volatility


Daniel G. Goldstein


Microsoft Research New York City; London Business School

Nassim Nicholas Taleb


New York University-Poly School of Engineering

March 28, 2007

Journal of Portfolio Management, Vol. 33, No. 4, 2007

Abstract:     
Finance professionals, who are regularly exposed to notions of volatility, seem to confuse mean absolute deviation with standard deviation, causing an underestimation of 25% with theoretical Gaussian variables. In some fat tailed markets the underestimation can be up to 90%. The mental substitution of the two measures is consequential for decision making and the perception of market variability.

Number of Pages in PDF File: 8

Keywords: finance, volatility, risk, intuition, statistics, metrics

JEL Classification: D8, D9, E2, G2, N2

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Date posted: March 14, 2007 ; Last revised: November 16, 2012

Suggested Citation

Goldstein, Daniel G. and Taleb, Nassim Nicholas, We Don't Quite Know What We are Talking About When We Talk About Volatility (March 28, 2007). Journal of Portfolio Management, Vol. 33, No. 4, 2007. Available at SSRN: http://ssrn.com/abstract=970480

Contact Information

Daniel G. Goldstein (Contact Author)
Microsoft Research New York City ( email )
641 Avenue of Americas
New York, NY 10011
United States
London Business School ( email )
Sussex Place
Regent's Park
London, London NW1 4SA
United Kingdom
+44 0 20 7000 8611 (Phone)
+44 0 20 7000 8601 (Fax)
HOME PAGE: http://www.dangoldstein.com
Nassim Nicholas Taleb
New York University-Poly School of Engineering ( email )
Brooklyn, NY 11201
United States

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