THE CRITICAL CURVE OF THE LONG-TERM RATE OF RETURN WHEN HOLDING RISK ASSETS

This paper used the Monte Carlo method to randomly simulate the rate of return, series, and then studied the characteristics of the long-term investment rate of return and its variance The computing results showed that, when expressing the longterm rate of return. the Geometrical Brown Motion Model describing the prices of risk assets is very different from the reality. The computing results also shouted that, when compared with the short-term mate of return and its variance, both the long-term mate of return and variance decrease with the increasing of investment term, and when the Mean of short-term rate of return as a relatively minor positive value, the mean of long-term rate of return might be significantly negative sonic times. We obtained the critical curve of the rate of return when holding risk assets for a long term through. the Monte Carlo method, and deduced several empirical formulas that can exactly express the critical curve by the econometrics. All of these formulas express the relationship between the average rate of return of long-term investment and the short-term rate of return, and its variance This paper also proposed the concept of long-term investment risk premium, and explained the significance of critical curve from the point of investments