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The Joy of Volatility

FINRISK Working Paper No. 374

6 Pages Posted: 28 Apr 2007  

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

Abstract

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.

Keywords: Volatility, capital growth, investment, constant proportions strategies

JEL Classification: G00

Suggested Citation

Dempster, M. A. H. and Evstigneev, Igor V. and Schenk-Hoppé, Klaus Reiner, The Joy of Volatility. Available at SSRN: https://ssrn.com/abstract=983112 or http://dx.doi.org/10.2139/ssrn.983112

M. A. H. Dempster

University of Cambridge - Centre for Financial Research ( email )

Centre for Mathematical Sciences
Wilberforce Road
Cambridge, CB3 0WA
United Kingdom

Cambridge Systems Associates Limited ( email )

5-7 Portugal Place
Cambridge, CB5 8AF
United Kingdom

Igor V. Evstigneev

University of Manchester - Economics, School of Social Sciences ( email )

Oxford Road
Manchester, M13 9PL
United Kingdom
+44 161 2754275 (Phone)
+44 161 2754812 (Fax)

HOME PAGE: http://www.evstigneev.net

Klaus Reiner Schenk-Hoppé (Contact Author)

University of Manchester - Department of Economics ( email )

Arthur Lewis Building
Oxford Road
Manchester, M13 9PL
United Kingdom

Norwegian School of Economics (NHH) - Department of Finance ( email )

Helleveien 30
N-5045 Bergen
Norway

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