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This research shows that the horizon of these two variables – volatility and future return – behave quite differently. Volatility tends to spike and recede quickly, whereas expected returns are more persistent and realized in a slower manner with a longer horizon. An investor may miss the first leg of the future returns while volatility decreases/normalizes, but returns tend to remain persistent allowing the investor a chance to participate even as they enter with a delay. On a risk-adjusted basis, this reaction generates superior performance and better downside protection.

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