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Finance professionals, despite regular exposure to notions of volatility, seem to confuse mean absolute deviation with standard deviation. In some fat tailed markets, theoretical Gaussian variables can be underestimated by as much as 90%. It is not a lack of statistical knowledge that appears to be the impediment, but rather difficulty in translating a non-linear measure into a real-world application. Mental substitution of the two measures is consequential for decision-making and the perception of market variability. TOPICS: VAR and use of alternative risk measures of trading risk, accounting and ratio analysis
Goldstein et al. (Tue,) studied this question.