Friday, October 15, 2010

Financial Research Reveals Truth In Rare Disaster Theory | Voxy.co.nz

Financial Research Reveals Truth In Rare Disaster Theory | Voxy.co.nz:

This one has the potential to be HUGE....

Here is the actual paper.

"Professor Jacobsen says the theory sheds light on two key issues in finance. The first is the equity premium puzzle, that returns on stocks are too high relative to other investments, and the second is that the volatility of stockmarkets is too high to be explained by economic variables.

'For decades people have tried to explain these puzzles but, so far, not convincingly. However, this new theory would explain both. According to this theory, if investors account for a small probability of a rare disaster and if this probability fluctuates over time these two puzzles can be explained."

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