Compound Returns
| Farago, Adam | ||
| Hjalmarsson, Erik | ||
| Department of Economics, University of Gothenburg | sv | |
| 2019-06-10T07:30:56Z | ||
| 2019-06-10T07:30:56Z | ||
| 2019-06 | ||
| JEL: C58, G10 | sv | |
| We provide a theoretical basis for understanding the properties of compound re-turns. At long horizons, multiplicative compounding induces extreme positive skewness into individual stock returns, an effect primarily driven by single-period volatility. As a consequence, most individual stocks perform very poorly. However, holding just a few stocks (instead of a single one) greatly improves the long-run prospects of an investment strategy, indicating that missing out on the “lucky few” winner stocks is not a great concern. We show analytically how this somewhat counterintuitive result arises from an interaction between compounding, diversification, and rebalancing that has seemingly not been previously noted. | sv | |
| 82 | sv | |
| 1403-2465 | ||
| http://hdl.handle.net/2077/60415 | ||
| eng | sv | |
| Working Papers in Economics | sv | |
| 767 | sv | |
| Compound returns | sv | |
| Diversification | sv | |
| Long-run returns | sv | |
| Skewness | sv | |
| Compound Returns | sv | |
| Text | sv | |
| report | sv |