The Joy of Volatility
M. A. H. Dempster
University of Cambridge - Centre for Financial Research; Cambridge Systems Associates Limited
Igor V. Evstigneev
University of Manchester - Economics, School of Social Sciences
Klaus Reiner Schenk-Hoppé
University of Manchester - Department of Economics; Norwegian School of Economics (NHH) - Department of Finance
FINRISK Working Paper No. 374
Modern portfolio theory regards the return of an asset as its upside, while volatility is seen as its downside. This view is shared by the majority of investors who dislike volatile markets. Recent results in financial mathematics, however, show that volatility is actually good, rather than bad, for financial growth. Very simple active portfolio management opens up this profitable opportunity to generate growth from volatility.
Number of Pages in PDF File: 6
Keywords: Volatility, capital growth, investment, constant proportions strategies
JEL Classification: G00
Date posted: April 28, 2007
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