Why Risk is Not Related to Return

This paper argues that in general risk is not empirically correlated with returns in any obvious way. This puzzle is explained as the implication of a utility function in which if people care only about relative wealth, risk is a deviation from what everyone else is doing, and therefore becomes avoidable and unpriced, similar to diversifiable risk in the Capital Asset Pricing Model (CAPM). Using a utility or arbitrage argument, a relative status utility function creates a zero risk-return correlation via a market model that implies a zero risk premium, and has other applications