# Reading 31 SS alternative investment Q36

In the solution, CFAI says “Use longer measurement interval will help to lower anualized volatility estimates.”

The same mentioned in page 87, book 5…

What I can explain for this situation in the example below:

Assum dailly standard dev is 2%

monthly standard dev = 2% * 20^1/2 =8.94% (1)

anualized from dailly = 2% * 250^1/2 = 31.62% (2)

Anualized from monthly = 8,94 * 12^1/2 = 30,98% (3)

• Now we compare the 2 cal:

(3) can be calculated by composing (1) and (3):

Anualized = 2% * (20^1/2) * (12^1/2) = 2% * 240^1/2 = 30,98.

The difference btw (2) and (3) is that, (2) use 250 trading days while (3) use 240 days. -> sure that (3) alway less than (2) mathematically.

So the conclusion of CFAI comes from their assumption that there are 20 trading days in a month ??? (The 2 calculation will be the same if 20.83 days of trading in a month)

any miss?

I think CFA gives you the number of days for an annual number from daily number to resolve ambiguity.

The statement “Use longer measurement interval will help to lower anualized volatility estimates” and your calculations mean two diffrent things. IMHO the statment means when you use longer durations we miss many ups and downs. So volatality is low. Not what you have shown with number of day agrgument.

22 trading days in a month

250 trading days in a year.

the question SHOULD give you a hint about the number of days