1. Eric Falkenstein

2. Tests are of any theory the framework allows There are an infinite number of theories allowed Framework is untestable

3. ReturnVolatility Small Stocks17.30%33.4% Stocks13%20.2% Corporate Bonds6.0%8.7% Government Bonds5.70%9.4% T-bills3.90%3.2% Brealey and Myers Investments Book

4. My Dissertation (1994) page 53

7. Theory that some liked volatility not an equilibrium theory Pre ‘behavioral finance’ popularity No fancy empirical test (didn’t use GMM) Makes no sense—arbitrage [I took equity risk premium as given] Theory more important than data Burned by calendar effects

8. Ang,, Hodrick, Xing and Zhang (JoF 2009) 1980-2003 Use Fama French Model

9. Beta-LowBeta0.5Beta1.0Beta1.5Beta-High AnnRet10.8%11.4% 8.2%4.5% AnnStdev13.1%11.6%17.4%26.2%33.9% Beta0.57 1.041.441.78

10. Sophie Ni (2007) Return from Bid-Ask midpoint to expiration -36%??

11. Moskowitz, and Vissing-Jorgensen (2002)

12. Penman, Richardson, and Tuna. 2007 Debt/Equity Expected Returns rDrD rErE Theory

13. Beta and Returns Unremarkable Russ Wermers JoF 2000 piece (persistence, turnover) Burton Malkiel JoF 1995 piece (persistence, alpha) Carhart JoF 1997 (persistence, momentum) Beta irrelevant The biggest criticism is not adverse statements, but neglect

14. Return in AUD=Return in Yen+Appreciation in Yen/AUD % change in currency unpredictable

15. 1990-2008 Dollar Annualized Returns, Standard Deviations Morgan Stanley Capital International (MSCI) MSCI Emerging Markets Index: 7.3%, 35% MSCI World (Developed) Index: 4.4%, 19%

16. Dimson, Marsh, Staunton (2005) 17 Countries, 1900-2005, Annual Data

17. No Return Premium to High Yield Bonds over Investment Grade Merrill High Yield Master II (HOAO) Merrill BBB-AA Index (COCO) 20 HY Funds, 12 IG funds

18. 1% premium from 0.25 to 3 years No premium from 5 to 30 years Volatility, Covariance, increasing linearly

19. Futures return from roll Harvey and Erb (2007) copper, heating oil, and live cattle were on average in backwardization, corn, wheat, silver, gold, and coffee were in contango What covariance, volatility has to do with this ???

20. Campbell, Hilscher, and Szilagyi (2006) Find high distress firms have lower returns Source: Author. Data from Moody’s, S&P, Compustat

21. Longshot bias Horse Track: 1-10 odd horses 3% average return on investment 100-1 odd horses have -86% average return Bias not there in smaller odds, as in baseball

22. Devany and Walls (1999), 2015 movies from 1984-96

23. Steve Sharpe and Gene Amromin (2005). People have higher expected returns when they have lower expected volatilities Most studies find no positive aggregate volatility/return correlation over time

24. IPO has a lot of Uncertainty Jay Ritter (see his website). 1980-2008. IPO Returns -3.7% annually below size-matched firms for first 5 years

25. Deither, Malloy, and Scherbina (2002). Table 2. Data from 1983-2000. Data ‘strongly reject the interpretation of dispersion in analysts’ forecasts as a measure of risk’

26. Turnover of stock a proxy for disagreement Highly correlated with beta

27. Equity Beta Volatility Equity options Distressed stock returns Analyst Disagreement Trading Volume IPOs Leverage and stock returns Lotteries Horse racing

28. Equity Over time Across Countries BBB to B bond returns Futures Currencies Private Investments Movies Mutual Funds Low Odds Sport Bets

29. Initial story was about total volatility Total volatility flat or negatively correlated with return Beta flat or negatively correlated with return unrelated to risk. Volatility, Beta Uncorrelated, negatively correlated, with ‘true’ betas ???