The Missing Risk Premium by Eric G. Falkenstein
Why Low Volatility Investing Works

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Risk is the deviation from the consensus rather than an exposure to a covariance, and this implies there is no risk premium in general. It also implies that when there are a large number of people buying highly volatile assets, such assets will have negative returns in equilibrium. As there are several independent motivations for people to buy highly volatile assets, intuitively risky assets generally have lower-than-average returns. This novel conception of risk implies many things more consistent with the data than the current theory.

Risk taking is an important life skill, so understanding its nature is important, and unfortunately academics who study it full-time are like so many other experts: when not irrelevant, 180 degrees wrong.

This book explains the current asset pricing theory, and proposes an alternative, using theory and a unique survey of the data across many asset classes. Familiarity with some MBA level finance is helpful but not necessary to appreciate this book.

About Eric G. Falkenstein

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Published September 9, 2012 by CreateSpace Independent Publishing Platform. 196 pages
Genres: Business & Economics, Professional & Technical. Non-fiction

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In fact, “in practice any measure of risk is at best uncorrelated with average returns and is often negative.” The author, targeting economists, financial analysts and students, expounds on the current asset pricing theory, discusses the “rise and fall of standard models,” and for good measure, a...

Oct 29 2012 | Read Full Review of The Missing Risk Premium: Why...

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