Download Risk-Based Approaches to Asset Allocation: Concepts and by Maria Debora Braga PDF

By Maria Debora Braga

This e-book specializes in the ideas and functions of risk-based asset allocation. Markowitz’s conventional method of asset allocation suffers from critical drawbacks whilst applied. those often come up from the estimation hazard linked to the mandatory enter the main severe being anticipated returns. With the monetary trouble, there was an expanding curiosity in asset allocation techniques that don’t want anticipated returns as enter, referred to as risk-based methods. The booklet offers an research of the several options that healthy this description: the equal-weighting technique, the worldwide minimum-variance process, the main various portfolio procedure and the chance parity process. as well as a theoretical dialogue of those, it offers useful purposes in numerous funding environments. 3 diverse assessment dimensions are thought of to place those ways to the try: monetary potency, diversification and portfolio stability.

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Risk-Based Approaches to Asset Allocation: Concepts and Practical Applications

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It is worth noting that giving extreme loadings to one asset class is quite a general characteristic of the global minimum-variance approach. For this reason, the strategy is likely to be particularly sensitive to volatilities and correlations estimates. 2, we also show the results from the risk decomposition exercise. Certainly, such an exercise provides some interesting insights or validations.

J Investing 20:119–127 Qian E (2013) Are risk-parity managers at risk parity? J Portfolio Manage 40:20–26 Roncalli T (2014) Introduction to risk parity and budgeting. Chapman & Hall, Boca Raton Roncalli T, Weisang G (2012) Risk parity portfolios with risk factors. Centre d’Etudes des Politiques Economiques et de l’Emploi and Clark University—Graduate School of Management. Working paper Ross S (1976) The arbitrage theory of Capital asset pricing. J Econ Theor 13:341–360 Ruban O, Melas D (2011) Constructing risk parity portfolios: rebalance, leverage, or both?

A risk parity solution based on risk budgets with respect to “risk factors” rather than the asset classes appears to be attractive for its focus on the profound drivers of reward and variability for investors embedded in asset classes that group together individual securities. However, we have to acknowledge it is also subject to some shortcomings or difficult tasks that can restrain asset managers from its practical use. 14 A quite difficult task can be represented by the choice of the type of “risk factors” to consider and the measurement of exposures to them.

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