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).
Based on QMA’s 2020 2Q Capital Market Assumptions, expected returns on traditional public market investments are likely to be considerably lower over the next 10 years than in the last decade, significantly undershooting the return requirements of asset owners who need to meet liabilities. This has not been altered by the…
The income-generating potential of alternatives seems to be largely underappreciated, despite the trend toward larger allocations to alternative asset classes and the need for yield. Investors can enhance their ability to capitalize on the yield and diversification benefits of alternatives by focusing on the risks that drive…
It is one thing to have a good investment idea, but quite another to extract the maximum potential from that idea and combine it with others to create an optimal portfolio. This is where portfolio construction comes in.
Defensive equity strategies have obvious appeal – especially in today’s turbulent markets. But how do you distinguish between a proliferating number of similar-sounding strategies? This eBook examines: 1) the key differentiators that can help sort through a sea of approaches, and 2) how to classify them in terms of risk and…
Defensive equity strategies have obvious appeal – especially in today’s turbulent markets. But how do you distinguish between a proliferating number of similar-sounding strategies? This eBook examines: 1) the key differentiators that can help sort through a sea of approaches, and 2) how to classify them in terms of risk and…
The current environment has tested hedge funds. Have they delivered as expected? In this brief, David Elms, Head of Diversified Alternatives and Suny Park, CFA, Head of Institutional Client Strategy, discuss why many hedge funds have failed to provide a ‘hedge’ during stress periods, and assess potential benefits of…
A recurring criticism of smart beta strategies is the presumption of a risk of “crowding”. It is frequently pointed to as a potential risk but is rarely formalised or even defined. While there is no convincing evidence to prove the crowding theorists correct, thinking about the economic rationale behind a specific premium…
This study addresses several questions investors have asked related to the VIX Index, volatility-based trading products, and the use of VIX futures in portfolio construction.
In this timely piece, Invesco highlights the relevance of strategic and tactical asset allocation for portfolio insurance, given increased market volatility.
Climate change has become undeniable, and no industry has greater exposure to its risks than the insurance sector. It poses a unique threat to both sides of their balance sheets – to insurers’ assets as well as their liabilities.
Is Value broken? Does a decade of disappointing performance mean that a factor has ultimately failed? The ‘lost decade’ for classic Fama-French factors like Size and Value raises some tough questions for quant researchers and portfolio managers. David Blitz and Pim van Vliet discuss a number of hot quant topics in our latest…
The author explains in a nontechnical fashion why dollar-neutral quant trading strategies, such as equities Statistical Arbitrage, suffered substantial losses (drawdowns) during the COVID-19 market selloff. We discuss: (i) why these strategies work during "normal" times; (ii) the market regimes when they work best; and (iii…
In this timely piece, Invesco highlights the relevance of strategic and tactical asset allocation for portfolio insurance, given increased market volatility.
An unusual shift in equity betas accompanied the market drawdown in March 2020, leaving equity investors few places to hide. In this paper, we share our observations of this dislocation and highlight the likely affect it had on defensive equity strategies.
Qontigo's Q1 2020 Insight Report examines changes in risk across asset classes and the performance of style factors and volatilities, in what was an extemely turbulent period for markets.
In this article, we explore generative models in order to build a market generator. The underlying idea is to simulate artificial multi-dimensional financial time series, whose statistical properties are the same as those observed in the financial markets. In particular, these synthetic data must preserve the first four…
The coronavirus pandemic is the third great crisis of the 21st century, following the Sept. 11 terror attacks and the Global Financial Crisis. The health-related uncertainties present a unique challenge for policymakers, as does a striking lack of international cooperation and great power leadership in responding to the…
Forecasting implied FX volatility surface has important applications in investment and trading, but it is a challenging task because the FX vol surface is composed of correlated high-dimensional time series and the shape of the surface can be significantly impacted by extreme market shocks that are almost impossible to…
Good market-risk indicators are hard to come by. While many price- or sentiment-based indicators are good at highlighting what type of risk environment we have been in, precious few can claim to give a contemporaneous – let alone forward-looking – signal that the market is moving into a significantly different regime.
Is investment in thematic equities threatened by the crisis that shook the markets from the very start? Which sectors have been most impacted? Which strategies to adopt?
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