The figure below was taken from a Module 3 ppt slide and shows the returns of various asset classes ranked from highest to lowest during each year from 2000 to 2017. Each asset class is represented by a different color. For example, the white box shows cash returns; the light green box shows commodity returns; the dark blue box shows S&P 500 returns and so on.

Recall that one of the implications of no free lunch is the risk vs. return trade-off, where higher risk assets have higher expected returns and lower risk assets have lower expected returns. If this were to hold true each year, one would expect returns of riskier assets to rank amongst highest each year and returns less risky assets to rank amongst the lowest.

The color pattern in the figure below is random. Meaning that in any given year, returns of less risky assets may or may not exceed that of higher risk assets. For example, in 2000, 2001 & 2008, US Treasury bonds & cash (less risky assets) had higher returns than that of the S&P 500 & MSCI-EAFE (higher risk assets).

The color pattern in the figure below is random. Meaning that in any given year, returns of less risky assets may or may not exceed that of higher risk assets. For example, in 2000, 2001 & 2008, US Treasury bonds & cash (less risky assets) had higher returns than that of the S&P 500 & MSCI-EAFE (higher risk assets).

Reconcile this phenomenon with the risk vs. return trade-off. Does this violate no free lunch? Explain.