Analysing the Effects of Tactical Overlays on Equal-Weighted and (Min CVAR) Equal Risk-Weighted Portfolios PDF Download
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Author: Sathish Umapathy
Publisher:
ISBN:
Category :
Languages : en
Pages : 22
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Book Description
Strategic asset allocations are based on the longer term view of the assets return and the tactical asset allocation captures the short term views from the market environment. Although numerous studies are conducted on these approaches separately, there are no studies which summarise the results of a combined approach. The studies conducted assume that the other model is readily available. In this paper, we would like to address this by analysing the effects of overlay approaches applied to the equal risk-weighted and equal-weighted portfolios. Minimum CVAR equal risk-weighted portfolio provides an attractive compromise between the good risk-adjusted return properties of the minimum risk portfolio and the positive return potential and low portfolio turnover of an equally weighted portfolio and this makes it a good candidate for a strategic portfolio. To enhance its returns, we constructed overlay approaches using value and momentum signals. We compared the results of the constructed portfolios against the equal-weighted portfolios with overlays and found that different overlays work well with different base portfolios. We found that the value strategy enhanced the risk-adjusted returns of an equal risk-weighted portfolio but not an equal-weighted portfolio. Similarly, we observed that a combined momentum-value strategy works well with the equal-weighted portfolio but not with the equal risk-weighted portfolio. We also found that the momentum strategy works well with both the portfolios. We extended our analysis to different crisis-periods and observed that the combined overlay has a positive effect on already well performing equal risk-weighted portfolios but not on the equal-weighted portfolios. We observed the reverse during the bull periods. Thus we conclude that the overlays add value to the strategic portfolios and the challenge is in identifying the right one under a given macro-economic condition.
Author: Sathish Umapathy
Publisher:
ISBN:
Category :
Languages : en
Pages : 22
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Book Description
Strategic asset allocations are based on the longer term view of the assets return and the tactical asset allocation captures the short term views from the market environment. Although numerous studies are conducted on these approaches separately, there are no studies which summarise the results of a combined approach. The studies conducted assume that the other model is readily available. In this paper, we would like to address this by analysing the effects of overlay approaches applied to the equal risk-weighted and equal-weighted portfolios. Minimum CVAR equal risk-weighted portfolio provides an attractive compromise between the good risk-adjusted return properties of the minimum risk portfolio and the positive return potential and low portfolio turnover of an equally weighted portfolio and this makes it a good candidate for a strategic portfolio. To enhance its returns, we constructed overlay approaches using value and momentum signals. We compared the results of the constructed portfolios against the equal-weighted portfolios with overlays and found that different overlays work well with different base portfolios. We found that the value strategy enhanced the risk-adjusted returns of an equal risk-weighted portfolio but not an equal-weighted portfolio. Similarly, we observed that a combined momentum-value strategy works well with the equal-weighted portfolio but not with the equal risk-weighted portfolio. We also found that the momentum strategy works well with both the portfolios. We extended our analysis to different crisis-periods and observed that the combined overlay has a positive effect on already well performing equal risk-weighted portfolios but not on the equal-weighted portfolios. We observed the reverse during the bull periods. Thus we conclude that the overlays add value to the strategic portfolios and the challenge is in identifying the right one under a given macro-economic condition.
Author: David Ardia
Publisher:
ISBN:
Category :
Languages : en
Pages : 17
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Book Description
The equal-risk-contribution, inverse-volatility weighted, maximum-diversification and minimum-variance portfolio weights are all direct functions of the estimated covariance matrix. We perform a Monte Carlo study to assess the impact of covariance matrix misspecification to these risk-based portfolios. Our results show that the equal-risk-contribution and inverse-volatility weighted portfolio weights are relatively robust to covariance misspecification, but that the minimum-variance and maximum-diversification portfolios are highly sensitive to errors in the estimated variance and correlation, respectively.
Author: Marcel Schauss
Publisher:
ISBN:
Category :
Languages : en
Pages :
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Book Description
The reliance on estimated input parameters for the Markowitz portfolio optimization is well documented to result in extreme and highly unstable allocations that perform poorly in an out-of-sample context. Therefore, the investor's attention is increasingly drawn towards equally-weighted and respectively minimum-variance strategies since their construction does not rely on an explicit modelling of expected returns. This paper examines two alternative risk-weighted portfolio strategies that restrict their input requirements to the model of risk. The equally-weighted risk contribution portfolio (ERC) introduced by Maillard, Roncalli and Teiletche (2009) maximizes the dispersion in risks by equalizing the ex-ante total risk contributions of every portfolio component and thus achieves superior diversification. The Eigenvector strategy (EIG) relies on the noise-dressing methodology proposed by Laloux et al. (1999) and allocates the invested wealth subject to maximizing the dispersion of the portfolios' exposures to the significant uncorrelated sources of risk (the effective number of uncorrelated bets). Based on two samples consisting of the daily prices of the constituents of the EURO STOXX 50 Price Index (ranging from 1995-2011) and respectively the Swiss Market Price Index (2000-2011), an empirical back test relying on an rolling sample approach to parameter estimation confirms the particular advantageous downside characteristics of the ERC strategy and validates its standing as an attractive alternative to the equally-weighted and the minimum-variance strategies, respectively. Due to its lack of robustness, the EIG strategy seems to require further refinement in order to represent a satisfactory alternative to the risk-weighted strategies.
Author: Vasant Naik
Publisher: CFA Institute Research Foundation
ISBN: 1944960155
Category : Business & Economics
Languages : en
Pages : 192
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Book Description
Author: Bernhard Pfaff
Publisher: John Wiley & Sons
ISBN: 1119119685
Category : Mathematics
Languages : en
Pages : 448
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Book Description
Financial Risk Modelling and Portfolio Optimization with R, 2nd Edition Bernhard Pfaff, Invesco Global Asset Allocation, Germany A must have text for risk modelling and portfolio optimization using R. This book introduces the latest techniques advocated for measuring financial market risk and portfolio optimization, and provides a plethora of R code examples that enable the reader to replicate the results featured throughout the book. This edition has been extensively revised to include new topics on risk surfaces and probabilistic utility optimization as well as an extended introduction to R language. Financial Risk Modelling and Portfolio Optimization with R: Demonstrates techniques in modelling financial risks and applying portfolio optimization techniques as well as recent advances in the field. Introduces stylized facts, loss function and risk measures, conditional and unconditional modelling of risk; extreme value theory, generalized hyperbolic distribution, volatility modelling and concepts for capturing dependencies. Explores portfolio risk concepts and optimization with risk constraints. Is accompanied by a supporting website featuring examples and case studies in R. Includes updated list of R packages for enabling the reader to replicate the results in the book. Graduate and postgraduate students in finance, economics, risk management as well as practitioners in finance and portfolio optimization will find this book beneficial. It also serves well as an accompanying text in computer-lab classes and is therefore suitable for self-study.
Author: European Central Bank
Publisher:
ISBN:
Category : Bank reserves
Languages : en
Pages : 376
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Book Description
Author: Richard R. Lindsey
Publisher: John Wiley & Sons
ISBN: 1118044754
Category : Business & Economics
Languages : en
Pages : 406
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Book Description
Praise for How I Became a Quant "Led by two top-notch quants, Richard R. Lindsey and Barry Schachter, How I Became a Quant details the quirky world of quantitative analysis through stories told by some of today's most successful quants. For anyone who might have thought otherwise, there are engaging personalities behind all that number crunching!" --Ira Kawaller, Kawaller & Co. and the Kawaller Fund "A fun and fascinating read. This book tells the story of how academics, physicists, mathematicians, and other scientists became professional investors managing billions." --David A. Krell, President and CEO, International Securities Exchange "How I Became a Quant should be must reading for all students with a quantitative aptitude. It provides fascinating examples of the dynamic career opportunities potentially open to anyone with the skills and passion for quantitative analysis." --Roy D. Henriksson, Chief Investment Officer, Advanced Portfolio Management "Quants"--those who design and implement mathematical models for the pricing of derivatives, assessment of risk, or prediction of market movements--are the backbone of today's investment industry. As the greater volatility of current financial markets has driven investors to seek shelter from increasing uncertainty, the quant revolution has given people the opportunity to avoid unwanted financial risk by literally trading it away, or more specifically, paying someone else to take on the unwanted risk. How I Became a Quant reveals the faces behind the quant revolution, offering you?the?chance to learn firsthand what it's like to be a?quant today. In this fascinating collection of Wall Street war stories, more than two dozen quants detail their roots, roles, and contributions, explaining what they do and how they do it, as well as outlining the sometimes unexpected paths they have followed from the halls of academia to the front lines of an investment revolution.
Author: Richard O. Michaud
Publisher: Oxford University Press
ISBN: 0199715793
Category : Business & Economics
Languages : en
Pages : 145
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Book Description
In spite of theoretical benefits, Markowitz mean-variance (MV) optimized portfolios often fail to meet practical investment goals of marketability, usability, and performance, prompting many investors to seek simpler alternatives. Financial experts Richard and Robert Michaud demonstrate that the limitations of MV optimization are not the result of conceptual flaws in Markowitz theory but unrealistic representation of investment information. What is missing is a realistic treatment of estimation error in the optimization and rebalancing process. The text provides a non-technical review of classical Markowitz optimization and traditional objections. The authors demonstrate that in practice the single most important limitation of MV optimization is oversensitivity to estimation error. Portfolio optimization requires a modern statistical perspective. Efficient Asset Management, Second Edition uses Monte Carlo resampling to address information uncertainty and define Resampled Efficiency (RE) technology. RE optimized portfolios represent a new definition of portfolio optimality that is more investment intuitive, robust, and provably investment effective. RE rebalancing provides the first rigorous portfolio trading, monitoring, and asset importance rules, avoiding widespread ad hoc methods in current practice. The Second Edition resolves several open issues and misunderstandings that have emerged since the original edition. The new edition includes new proofs of effectiveness, substantial revisions of statistical estimation, extensive discussion of long-short optimization, and new tools for dealing with estimation error in applications and enhancing computational efficiency. RE optimization is shown to be a Bayesian-based generalization and enhancement of Markowitz's solution. RE technology corrects many current practices that may adversely impact the investment value of trillions of dollars under current asset management. RE optimization technology may also be useful in other financial optimizations and more generally in multivariate estimation contexts of information uncertainty with Bayesian linear constraints. Michaud and Michaud's new book includes numerous additional proposals to enhance investment value including Stein and Bayesian methods for improved input estimation, the use of portfolio priors, and an economic perspective for asset-liability optimization. Applications include investment policy, asset allocation, and equity portfolio optimization. A simple global asset allocation problem illustrates portfolio optimization techniques. A final chapter includes practical advice for avoiding simple portfolio design errors. With its important implications for investment practice, Efficient Asset Management 's highly intuitive yet rigorous approach to defining optimal portfolios will appeal to investment management executives, consultants, brokers, and anyone seeking to stay abreast of current investment technology. Through practical examples and illustrations, Michaud and Michaud update the practice of optimization for modern investment management.
Author: Alex Greyserman
Publisher: John Wiley & Sons
ISBN: 1118890973
Category : Business & Economics
Languages : en
Pages : 470
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Book Description
An all-inclusive guide to trend following As more and more savvy investors move into the space, trend following has become one of the most popular investment strategies. Written for investors and investment managers, Trend Following with Managed Futures offers an insightful overview of both the basics and theoretical foundations for trend following. The book also includes in-depth coverage of more advanced technical aspects of systematic trend following. The book examines relevant topics such as: Trend following as an alternative asset class Benchmarking and factor decomposition Applications for trend following in an investment portfolio And many more By focusing on the investor perspective, Trend Following with Managed Futures is a groundbreaking and invaluable resource for anyone interested in modern systematic trend following.
Author: Adam Butler
Publisher: John Wiley & Sons
ISBN: 1119220378
Category : Business & Economics
Languages : en
Pages : 209
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Book Description
Build an agile, responsive portfolio with a new approach to global asset allocation Adaptive Asset Allocation is a no-nonsense how-to guide for dynamic portfolio management. Written by the team behind Gestaltu.com, this book walks you through a uniquely objective and unbiased investment philosophy and provides clear guidelines for execution. From foundational concepts and timing to forecasting and portfolio optimization, this book shares insightful perspective on portfolio adaptation that can improve any investment strategy. Accessible explanations of both classical and contemporary research support the methodologies presented, bolstered by the authors' own capstone case study showing the direct impact of this approach on the individual investor. Financial advisors are competing in an increasingly commoditized environment, with the added burden of two substantial bear markets in the last 15 years. This book presents a framework that addresses the major challenges both advisors and investors face, emphasizing the importance of an agile, globally-diversified portfolio. Drill down to the most important concepts in wealth management Optimize portfolio performance with careful timing of savings and withdrawals Forecast returns 80% more accurately than assuming long-term averages Adopt an investment framework for stability, growth, and maximum income An optimized portfolio must be structured in a way that allows quick response to changes in asset class risks and relationships, and the flexibility to continually adapt to market changes. To execute such an ambitious strategy, it is essential to have a strong grasp of foundational wealth management concepts, a reliable system of forecasting, and a clear understanding of the merits of individual investment methods. Adaptive Asset Allocation provides critical background information alongside a streamlined framework for improving portfolio performance.
