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Why is it good to have lower volatility? Doesn't that usually mean lower expected returns?
by shawnz 7y ago
Why is it good to have lower volatility? Doesn't that usually mean lower expected returns?
- chillacy 7y agoVolatility and returns are not the same thing, but you're correct that people are usually willing to pay a premium to reduce volatility (for instance consider that Vegas Roulette has high volatility and negative returns, so plenty of people leave the table winning money). A lot goes into the price of a stock. At a minimum it includes some sort of fundamental value (price of all assets) plus some discounted expectation of future earnings. These two things don't actually change that quickly, so any wild price swings on top of that are probably not connected to the fundamentals.