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galagan, the opposite can also be true - as the past three years show, you may not always be compensated enough for a risk. i tend to think that in general, efficiency pushes things towards risk-neutrality, but the premium you can earn oscillates back and forth over time, from negative to positive, around the risk-neutral proposition. although i am open to the potential for a persistent premium to be earned (what you called compensation) due to risk aversity, i just don't think that the premium or excess compenstaion is ever likely to be consistently available. for example, the risk-reward asymmetry in debt was the thing that "early milken" figured out. it was milken that figured out that lower rated debt had more than compensated for credit risk in the past. but that led to too much underwriting and a speculative orgy that actually pushed the premium into negative territory. as we saw again in the ipo market the past 7 years, the latecomers always pay too high a price.

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