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).
Investors have a bond problem. Every crisis brings new lows in government bond yields and predictions of the end of bonds as an asset class. Investors are now questioning the logic of hedging expensive equities with expensive bonds, but is there really a viable alternative?
The recent, decade-plus returns of diversified portfolios have disappointed relative to mainstream US stocks and bonds. A long-term examination, dating back to the mid-1970s, reveals such a shortfall is not unprecedented and the long-term case for diversification is still powerful. Extrapolating the recent superior…
This article is part of a comprehensive research project on liquidity risk in asset management, which can be divided into three dimensions. The first dimension covers liability liquidity risk (or funding liquidity) modeling, the second dimension focuses on asset liquidity risk (or market liquidity) modeling, and the third…
In a market dominated by a handful of stocks, some investors may be questioning whether rebalancing is still an effective way to capture additional portfolio returns. Intech research continues to show the long-term outperformance potential that investors can derive from active diversification and systematic rebalancing to…
In a market dominated by a handful of stocks, some investors may be questioning whether rebalancing is still an effective way to capture additional portfolio returns. Intech's research continues to show the long-term outperformance potential that investors can derive from active diversification and systematic rebalancing to…
Do high active risk (AR) equity portfolio managers tend to realize a relatively high information ratio (IR)? PGIM explores the AR-IR relationship across various global equity mandates and investment approaches. They find that the AR-IR relationship varies across mandates. The IR gap between Low AR and High AR managers tends…
Funding deficits and all-time market highs have many plan sponsors examining low volatility factor investing, which may offer market-cap-like index performance with reduced volatility and drawdowns. MSCI Minimum Volatility Indexes are useful “entry points” to this exposure, but like many indexes, they have constraints that…
Funding deficits and all-time market highs have many plan sponsors examining low volatility factor investing, which may offer market-cap-like index performance with reduced volatility and drawdowns. MSCI Minimum Volatility Indexes are useful “entry points” to this exposure, but like many indexes, they have constraints that…
Diversified Alternatives Portfolio Managers Aneet Chachra and Steve Cain discuss key components of a low-cost, long volatility strategy designed to pay off strongly in a crisis and carry better than other hedges during non-crisis periods.
It makes sense, intuitively, that equity factor performance and stages of the economic cycle are linked. The authors of this paper analyse the relationship across six geographic regions and over all four economic stages of growth, slowdown, recession, and recovery to discover the historical nature of that relationship. The…
UNCOVER SIX KEY INSIGHTS INTO THE FUTURE OF RISK TECHNOLOGY:
Today’s technologies enable executives to build robust data environments accompanied by extraordinarily powerful tracking and analytic capabilities; they can vastly improve enterprise risk management across the full set of compliance and portfolio risks.…
This study documents annual returns of the invested global multi-asset market portfolio, using a newly constructed unique dataset which basically covers the whole invested market. We analyze returns as well as risk over the period from 1960 to 2017. The market realizes a compounded real return in US dollars of 4.45% with a…
Funding deficits and all-time market highs have many plan sponsors examining low volatility factor investing, which may offer market-cap-like index performance with reduced volatility and drawdowns. MSCI Minimum Volatility Indexes are useful “entry points” to this exposure, but like many indexes, they have constraints that…
The massive growth in central bank balance sheets via quantitative easing, debt monetization, and firing of “big bazooka” stimulus packages gives the business cycle a renewed level of importance for understanding how changes in growth and inflation impact future shifts in global asset markets. We demonstrate the varying…
EDHEC-Risk Institute investigate the role of sectors on the performance of smart-beta products during the COVID-19 crisis. Cross sectional differences in excess returns (versus a market capitalized portfolio) are driven by strong exposures to a historically unique COVID-19 related industry rotation, rather than to long term…
The recent euphoric trading of GameStop and other high-flying stocks—prompted by retailer traders trying to squeeze institutional short sellers out of their positions—had a substantial impact on specific risk, particularly on less diversified portfolios, but even large benchmarks such as the Russell 2000 have been affected…
The desire among institutional investors for portfolio protection (hereafter simply referred to as ‘Protection’) ebbs and flows based on their most recent experience. Despite the fact there is no shortage of research papers advising investors to not pay for explicit Protection because it is too expensive in terms of negative…
Like ESG investing, climate change is an important concern for asset managers and owners, and a new challenge for portfolio construction. Until now, investors have mainly measured carbon risk using fundamental approaches, such as with carbon intensity metrics. Nevertheless, it has not been proven that asset prices are…
In a surprising turn of events, most equity markets finished 2020 with sizable gains — and the fourth quarter unquestionably did its part. Benchmark risk continued to slide in Q4 — except for a blip in November — but still ended the year higher than where it started. Factor returns went wild in Q4 and many regions saw…
