Risk, Regimes, and Overconfidence
Investors typically think of risk as the uncertainty of wealth at the end of their investment horizon. By focusing on the dispersion of ending wealth, investors ignore the effect of interim losses, no matter how severe. Investors also measure risk as though returns come from a single regime, which may understate the likelihood and severity of interim losses.
KeywordsTurbulent Regime Asset Class Return Series Investment Horizon Investment Period
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