The myth of volatility drag: Part 1
from CFA Institute's Enterprising Investor
Scary stuff! But reading these articles, I found myself wondering, is it actually true? Like so many myths, there is a kernel of truth. But the interpretation that volatility is an active force, “pulling” down returns and costing you money, is simply not correct. In part 1, we will explore the crux of the issue, understanding the geometric mean. In part 2, we will apply this understanding to arguments for volatility drag.
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