Taking Stationarity Seriously

Abstract

I wear two hats. For 40 years, I have been a professor of finance. For the last 10 years, I have run a small hedge fund. In my role as an academic, I play down the importance of stationarity to get on with research efforts. When I have to make investment decisions, it is the elephant in the room. In fact, the question of stationarity is so important that it often dominates my investment decision making and as a result renders much academic research of little practical value. The point of this commentary is to argue that finance research needs to take the question of stationarity more seriously to be more useful to investors.

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