Quote:
Originally Posted by stinkypete
but the realized standard deviation over a ten year period doesn't necessarily tell you anything about the tails of the underlying distribution. it's a useless measure if you're looking at, for example, a "hedge" fund that is heavily short (downside) volatility and the ten year period doesn't include a significant market crash.
it was this combined with a few other factors that doomed ltcm:
1) belief in their infallibility (extended investments into M&A arb where far different skills/expertise was needed)
2) sick use of leverage as available opportunities narrowed.
3) unwillingness to scale back exposure in the face of clear signs that one or two days could break the fund.
Barron