Actually, IIRC, one of Falkenstein’s findings was that once volatility exceeds a certain level, it actually is negatively correlated with returns. He explains this with the phrase “People pay for hope.”
Not terribly surprising—though you can pretty easily turn a low risk investment into a high-risk one at relatively low cost with a roulette wheel. It is going to be harder to sell high-risk low return bonds when high-risk average return bonds are also available.
Actually, IIRC, one of Falkenstein’s findings was that once volatility exceeds a certain level, it actually is negatively correlated with returns. He explains this with the phrase “People pay for hope.”
Not terribly surprising—though you can pretty easily turn a low risk investment into a high-risk one at relatively low cost with a roulette wheel. It is going to be harder to sell high-risk low return bonds when high-risk average return bonds are also available.