A Fundamental Misunderstanding of Risk: The Bias Associated with the Annualized Calculation of Standard Deviation

Matthew W. Burkett, William T. Scherer and David McMillan

Cogent Economics & Finance, 2020, vol. 8, issue 1, 1857005

Abstract: Quantifiable, measurable risk is of critical importance when making data-driven decisions in finance and investment management, but what if the generally accepted practice of the investment industry for calculating risk possessed incorrect mathematical assumptions and embedded biases? This piece revisits the discussion surrounding the methodology used to calculate annualized standard deviation statistics commonly used when reporting the performance of investment products. It goes on to present a new example illustrating the bias when applied to an efficient frontier.

Date: 2020
References: Add references at CitEc
Citations:

Downloads: (external link)
http://hdl.handle.net/10.1080/23322039.2020.1857005 (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:taf:oaefxx:v:8:y:2020:i:1:p:1857005

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/OAEF20

DOI: 10.1080/23322039.2020.1857005

Access Statistics for this article

Cogent Economics & Finance is currently edited by Steve Cook, Caroline Elliott, David McMillan, Duncan Watson and Xibin Zhang

More articles in Cogent Economics & Finance from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().