New related paper to #6 & #7 – Volatility Effect in Stocks and #20 – Volatility Risk Premium Effect
#6 – Volatility Effect in Stocks – Long-Short Version
#7 – Volatility Effect in Stocks – Long-Only Version
#20 – Volatility Risk Premium Effect
Authors: Ilmanen
Title: Do Financial Markets Reward Buying or Selling Insurance and Lottery Tickets?
Abstract:
Selling financial investments with insurance or lottery characteristics should earn positive longrun premiums if investors like positive skewness enough to overpay for these characteristics. The empirical evidence is unambiguous: Selling insurance and selling lottery tickets have delivered positive long-run rewards in a wide range of investment contexts. Conversely, buying financial catastrophe insurance and holding speculative lottery-like investments have delivered poor longrun rewards. Thus, bearing small risks is often well rewarded, bearing large risks not.
Notable quotations from the academic research paper:
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