The economic implications of volatility scaling by the square-root-of-time rule

Craig Ellis, Maike Sundmacher

    Research output: Chapter in Book / Conference PaperChapter

    Abstract

    The objective of research in this chapter is to demonstrate the implications for scaling financial asset risk when long-term returns do not follow a Gaussian random walk. Using a selection of Australian Stock Exchange (ASX) Top 50 equities, volatility at horizons ranging from 1 day to 1 year is measured directly and for longer time horizons, by linearly rescaling short-horizon volatility. The research shows that even small deviations from pure random behavior can lead investors to significantly misestimate their real level of risk.
    Original languageEnglish
    Title of host publicationStock Market Volatility
    EditorsGreg N. Gregoriou
    Place of PublicationU.S.
    PublisherCRC Press
    Pages147-161
    Number of pages15
    ISBN (Electronic)9781420099553
    ISBN (Print)9781420099546
    DOIs
    Publication statusPublished - 2009

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