OUTSIDE VIEW
MARK BARNES: Give credit where it is due, and ignore the law of averages
Financial risk analysis should focus on the law of averages, if the population follows a normal distribution — but ours doesn’t
26 September 2021 - 16:59
Averages can hide a multitude of sins, or, if you’re of the glass-half-full mindset, a multitude of opportunities. SA has a serious shortage of valid averages. A lot of financial risk analysis is focused on the behaviour of the average — on the crowd that fills the middle of the bell curve. Intentionally, or unwittingly, risk is most often priced off the average behaviour of the exposure...
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