Risk and Portfolio Construction - Articles & White Papers
White papers and articles on portfolio construction and risk management for investment managers. Maintaining an appropriately diversified portfolio, managing portfolio risk, and controlling the risk/reward characteristics of a fund are essential basics for money managers. Academic papers on portfolio optimization are particularly helpful in this regard. The most frequently downloaded... research in this section relates to reports on measuring investment risk, for instance: analysis of the time horizon over which risk is best estimated, and using risk factors as building blocks for portfolio diversification. Papers on tracking error have been well received as have papers on tail risk and fat tails. A number of articles in this section argue the case for concentrated portfolios and a need for more active management. Surveys on risk management and risk management systems have proved popular, enabling members to understand the risk practices employed by their peers. Other research on portfolio risk in this section includes papers on low volatility investing, equity risk premia, risk parity, models for forecasting asset class risk and the capital asset price model (CAPM).
PGIM's latest Megatrends paper, “The Future Means Business: Investment Implications of Transformative New Corporate Models,” draws on the insights of more than two dozen PGIM investment professionals across our private and public fixed income, equity, real estate and alternatives managers – as well as a new proprietary…
Behavioral finance presented in this book is the second-generation of behavioral finance. The first generation, starting in the early 1980s, largely accepted standard finance’s notion of people’s wants as “rational” wants—restricted to the utilitarian benefits of high returns and low risk. That first generation commonly…
Insurance investors are grappling with a world bedevilled by complexity. This M&G Investments paper explores how they can adapt their investment strategies for today's world. Though premiums are still growing in aggregate and claims being paid, the business model is coming under strain and the investment management…
2019 was a remarkable year, with benchmarks around the world climbing to new records, while volatility plunged. Both emerging and developed markets shared in the overperformance, with all components of risk falling for both markets. However, style factors saw mixed results, with few reporting outsized returns for the quarter…
Holding safe haven assets has always involved a trade-off. Over the last 30 years, bonds have served well as diversifiers, providing both income and capital appreciation – hence, masking this trade-off. This paper discusses the role of traditional safe haven assets – namely, high quality sovereign bonds, reserve currencies…
Common wisdom among academics and investors has it that factors are best harvested using both long and short positions. But Robeco’s empirical analysis challenges this assertion.
Speed read:
Most added value comes from the long legs of equity factor strategies
This study demonstrates that risk-adjusted returns of such strategies have potential to achieve higher returns and better Sharpe ratios using NDX options based on the Nasdaq-100 Index rather than SPX options based on the S&P 500 Index. The authors demonstrate how and why buy-write can be expected to improve risk-adjusted…
Robust optimization considers uncertainty in inputs to address the shortcomings of mean-variance optimization. This paper investigates the mechanisms by which robust optimization achieves its goal and give practical guidance regarding its parametrization. It shows that quadratic uncertainty sets are preferred to box…
Sure, you’ve been rebalancing your allocations, but equities often remain the largest source of risk in your portfolio and markets keep reaching new highs. Adding asset classes, changing target weights and making tactical decisions can all help, but there are real limits to diversifying away equity risk. Download this eBook…
Sure, you’ve been rebalancing your allocations, but equities often remain the largest source of risk in your portfolio and markets keep reaching new highs. Adding asset classes, changing target weights and making tactical decisions can all help, but there are real limits to diversifying away equity risk. Download this eBook…
Fixed income investing has undergone a sea change in the past decade. By tossing out some active management orthodoxies and embracing new technologies and quantitative techniques, the authors of this paper believe that some managers are better equipped to capture unique insights and excess returns for their clients. Several…
Fixed income investing has undergone a sea change in the past decade. By tossing out some active management orthodoxies and embracing new technologies and quantitative techniques, the authors of this paper believe that some managers are better equipped to capture unique insights and excess returns for their clients. Several…
Volatility is a challenge that has vexed equity investors for decades and has been amplified in today’s low interest-rate environment. As many investors reach for higher-return assets to help meet future obligations, they are likely to be more exposed to the higher inherent volatility that stocks add to an allocation. In…
This paper by Verus Investments analyzes some practical examples of the capital allocation process through the lens of a framework that aligns the components of the capital allocation process with the return objective. It shows how it can provide a feedback loop for stakeholders to allow them to monitor the status of their…
Traditional macroeconomic forecasts for the coming year are easy to come by, but harder to confidently exploit – in either direction. Instead, we examine the current relative behavior of stocks across several dimensions and place it within the appropriate historical context. In the process, we attempt to offer an integrated…
Traditional macroeconomic forecasts for the coming year are easy to come by, but harder to confidently exploit – in either direction. Instead, we examine the current relative behavior of stocks across several dimensions and place it within the appropriate historical context. In the process, we attempt to offer an integrated…
Winner of Financial Analysts Journal Graham and Dodd Awards of Excellence, Scroll Award 2019.
This article compares the efficacy of three common transaction-cost-mitigation techniques: limiting a strategy to cheap-to-trade securities, rebalancing a strategy less frequently, and “banding,” which imposes a…
This paper outlines the authors' views about the appropriate asset mix for different types of investors and explains their process for constructing a diversified portfolio that includes many of these new diversification opportunities. Most importantly, it highlights the steps that can be taken within asset allocation to…
In the current low interest rate environment, institutional investors have specifically inquired about investing in gold and the potential hedging benefits against inflation or an economic slowdown. Existing investment research on gold-related assets has produced conflicting results about the role of gold in institutional…
What is behavioural finance? What behaviours prevent us from making the right investment choices? How can we improve our investment decision making? This paper by Aberdeen Standard Investments explains further.
_0.png?itok=p0upM0J0){kind=logo}
