Finance Papers

Document Type

Journal Article

Date of this Version

4-2012

Publication Source

The Journal of Finance

Volume

67

Issue

2

Start Page

431

Last Page

478

DOI

10.1111/j.1540-6261.2012.01722.x

Abstract

According to conventional wisdom, annualized volatility of stock returns is lower over long horizons than over short horizons, due to mean reversion induced by return predictability. In contrast, we find that stocks are substantially more volatile over long horizons from an investor's perspective. This perspective recognizes that parameters are uncertain, even with two centuries of data, and that observable predictors imperfectly deliver the conditional expected return. Mean reversion contributes strongly to reducing long-horizon variance but is more than offset by various uncertainties faced by the investor. The same uncertainties reduce desired stock allocations of long-horizon investors contemplating target-date funds.

Copyright/Permission Statement

This is the peer reviewed version of the following article: PÁSTOR, Ľ. and STAMBAUGH, R. F. (2012), Are Stocks Really Less Volatile in the Long Run?. The Journal of Finance, 67: 431–478. doi:10.1111/j.1540-6261.2012.01722.x, which has been published in final form at http://dx.doi.org/10.1111/j.1540-6261.2012.01722.x. This article may be used for non-commercial purposes in accordance with Wiley Terms and Conditions for Self-Archiving http://olabout.wiley.com/WileyCDA/Section/id-820227.html#terms

Embargo Date

3-27-2014

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Date Posted: 27 November 2017

This document has been peer reviewed.