I don’t follow the answer explanation which states the perfect timing portfolio will always equal or ouperform the 100% Treasury bills portfolio based on construction. How is standard deviation a misleading indicator? Is the answer explanation based on the fact perfect timing will eliminate most, if not all, risk?
Right. Essentially there isnt any risk since you know exactly what the outcome will be every time you choose between investing in treasury or investing in the other asset. The standard of deviation you compute in this case is just some meaningless number in the sense that it does really amount to measuring the risk of picking the wrong investment due to the fact that returns swings from + to -; again since you always know with certainty what the outcome will be.
intelo Wrote: ------------------------------------------------------- > Right. Essentially there isnt any risk since you > know exactly what the outcome will be every time > you choose between investing in treasury or > investing in the other asset. The standard of > deviation you compute in this case is just some > meaningless number in the sense that it does > really amount to measuring the risk of picking the > wrong investment due to the fact that returns > swings from + to -; again since you always know > with certainty what the outcome will be. Thanks for the clarification.