Browsing: risk

Posts Tagged ‘ risk ’

Missed Rents’ Impact on Real Estate

Sep 24th, 2020 | Filed under: Real Estate, Newly Added, Real Estate Equity Investments, Real Assets

By Niel Harmse & Bryan Reid of MSCI Real Estate Lockdowns and social distancing have impacted many tenant businesses, resulting in an unprecedented number of requests for rental relief, stressing real estate rental income streams. For equity investors, income returns have weakened, despite softening asset values. Recent income returns mayRead More

The Case for Redefining the Risk-free Asset

Sep 13th, 2020 | Filed under: CAPM / Alpha Theory, Financial Economics Theory, Newly Added, Finance & Economics

The quantitative analysis of markets, and of the performance of fund managers, is in large part the mathematical treatment of various (often contested) metrics of risk. Let us bring two points about risk into collision. First, over more than three decades scholars have debated the “equity premium puzzle.” Why doRead More

Time-varying Volatility Adds a Critical Dimension to Diversification

Apr 21st, 2020 | Filed under: Newly Added, Risk management, The Alts Industry, Risk Management Strategies & Processes, Allocating to Alts

By Masao Matsuda, CAIA, FRM, Founder, Crossgates Investment and Risk Management In January 2020, the CAIA New York Chapter organized an event titled “Volatility? Downside Protection? Asset Allocation & Factor Management Tools for the Coming Decade.”[i] In retrospect, the event was uncannily prescient, as just a few months into the newRead More

Requiem for a Heavyweight

Dec 2nd, 2019 | Filed under: Due Diligence Process, Newly Added, What about beta?, Risk Management & Operations

By Bill Kelly, CAIA Association CEO A requiem is a solemn chant for the repose of the dead. Chant-worthiness when it comes to the Enron Corporation is still subject to much debate depending, of course, upon which side of that trade you were on as the company slipped into bankruptcyRead More

How to Improve Momentum Risk Management

Nov 12th, 2019 | Filed under: Hedge Fund Strategies, Equity Hedge Funds, Newly Added, Risk management, Risk Metrics and Measurement, The Alts Industry, Risk Management Strategies & Processes, Hedge Funds

Matthew X. Hanauer and Steffen Windmueller, two scholars affiliated with the Technical University of Munich, compare the performance of three risk management approaches applicable to the momentum strategy. Their new paper also explores the risk management techniques available for hedge fund managers and others who pursue a momentum strategy. ARead More

Past performance guarantees no future results

Oct 17th, 2019 | Filed under: Algorithmic and high-frequency trading, Financial Economics Theory, Newly Added, Risk management, Business News, The Alts Industry, Risk Management Strategies & Processes, Finance & Economics

Since, as everyone says, “past performance is no guarantee of future results,” a history of close correlation between two assets, or between a single asset and a benchmark, is no guarantee of future correlation. The threat that a correlation upon which a particular investor has relied will cease to applyRead More

Valuation: A New Approach to an Old Financial Tool

Oct 7th, 2019 | Filed under: Equity Hedge Funds, Newly Added, Risk management, Event-Driven Hedge Funds, Other Issues in Private Investments, The Alts Industry, Risk Management Strategies & Processes, Hedge Funds

Zane Swanson, an accounting professor at the University of Central Oklahoma, has been at work on a fascinating new approach to the valuation of firms and the valuation of their equity shares. This approach may be of great interest to risk arb hedge funds. Swanson is working with an establishedRead More

Climate Change and Artificial Intelligence as Investment Mega-Trends

Sep 24th, 2019 | Filed under: Private Equity, Newly Added, Alpha Strategies, Venture capital, The Global Economy & Currencies, Technology, Artificial Intelligence, Other Issues in Private Investments, The Alts Industry, Frontier markets, Emerging Alternative Investments, Private Investments, SRI and Clean Energy, Other Topics in Alts

A report from CREATE in collaboration with BNY Mellon looks at two related megatrends in investing—climate change and artificial intelligence. It asks in each case: how is this trend perceived in terms of opportunities and risks? What are the specific investment issues involved or solutions likely to be adopted? AndRead More

Waiting for Godot

Feb 25th, 2019 | Filed under: Consultants, Newly Added, Institutional Investing, Asset allocation, What about beta?, Asset Allocation Models, Institutional Asset Management, Allocating to Alts

By Bill Kelly, CEO, CAIA Association Waiting for Godot is a tragic comedy play by Samuel Beckett which first premiered on stage in Paris in 1953. There is only one scene and two primary characters who seem to know that they must wait for someone named Godot. They don’t knowRead More

How Bayesians Solve the Markowitz Problem

Jan 13th, 2019 | Filed under: CAPM / Alpha Theory, Financial Economics Theory, Newly Added, Behavioral finance, The Global Economy & Currencies, Macroeconomics, Finance & Economics

Understanding of the “Markowitz problem” has changed in the 60+ years since Harry Markowitz’ publication of an article in the Journal of Finance that outlined the basics of modern portfolio theory. The problem is that portfolio theory requires an investor to estimate risk, return, and correlation from market data, meaningRead More

The Low Volatility Anomaly: Gunpowder Inc.

Feb 26th, 2017 | Filed under: CAPM / Alpha Theory, Financial Economics Theory, Newly Added, Hedge Funds, Structure of the Hedge Funds Industry, Finance & Economics

In a new paper David Blitz, the head of quantitative strategies for Robeco Asset Management, crunches numbers and reaches a surprising conclusion, precisely contrary to an intuitively appealing theory about the low volatility anomaly.  But … let’s begin from the beginning. Standard financial economic theory holds that investors are compensatedRead More

2016 Allocator Trends Report: Consensus and Dissension

Apr 7th, 2016 | Filed under: Commodities, Investing in Commodities, Newly Added, Commodities

Context Summits has published a detailed report on the views of those who allocate money into hedge funds. Almost everybody they talked to is in on the act. Ninety-six percent of investors expect to allocate to two or more hedge funds in 2016.  A majority (57%) were prepared to investRead More

Andrew Lo: Progress is the Platform for Ever-Changing Risk

Feb 28th, 2016 | Filed under: Newly Added, Risk management, Partner accounting, Risk Management Strategies & Processes, Risk Management & Operations

Andrew Lo, of the Massachusetts Institute of Technology, recently wrote a stimulating discussion of two seemingly contrary “laws”: Moore’s and Murphy’s. Read More

AIMA’s Guide to the Bamboo Bridge of Operations

Feb 15th, 2016 | Filed under: Due Diligence Process, Newly Added, Regulatory Environment, Operations, The Alts Industry, Risk Management Strategies & Processes, Risk Management & Operations

How sturdy can a bamboo bridge be? The front page of a new Guide from The Alternative Investment Management Association consists of a photo of a bamboo bridge, apparently on a beach, as seen from below. That is, this is the view of someone on whom the bridge would fall,Read More

Risk Parity: Riding an Unpleasant Arc

Sep 27th, 2015 | Filed under: Asset Allocation Models

Risk parity may just be one of many strategies that follow a familiar arc, from promising new idea to crowded trade to crowded unwind. If this is so: where in that arc is it now? Read More

Burr XII, Extreme Value, and a Fantasy

Sep 15th, 2014 | Filed under: Risk management, Asset allocation

The eight authors of a new study seek to add to “the existing literature of Bayesian VaR methods by … considering the … general class of Burr XII extreme value distributions “ and by estimating error bounds. After having a little fun we try to puzzle out what that means. Read More

How Not to Nationalize the Clearinghouses

Aug 17th, 2014 | Filed under: Derivatives, Risk management, Insolvency

Let's not make clearinghouses too big to fail. Or if, through, Dodd-Frank, we already have, let's turn back and reconsider that decision. That's how not to end up bailing them out or nationalizing them in due course. Read More

EDHEC on Time Horizons and Glide Paths

Apr 16th, 2013 | Filed under: Risk management

Generalized considerations about equity and mean reversion have been institutionalized with the creation of glide path or "life-cycle" funds. but the authors of a new EDHEC paper contend that the glide paths defined by these funds don't represent the optimal approach to portfolio allocation.Read More

A Fresh Look at Track Records and Risk

Nov 29th, 2012 | Filed under: Hedge Fund Industry Trends, Hedge Fund Operations and Risk Management, Risk management

In Jack Schwager's view, the hedge fund industry as a whole is not a "mirage" at all. But relying on the past track record of specific funds or strategies: that is a dangerous reliance upon a mirage. Perhaps suggest that Grandma should put her nest egg in a diversified fund of funds.Read More

Wanting to Hedge and Wondering How

Sep 30th, 2012 | Filed under: Hedge Fund Operations and Risk Management, Institutional Investing, Risk management

Institutional investors and consultants are by now very sensitive to the fact of fat tail risk, and are no longer confident that diversification among traditional asset classes is a sufficient approach to the management of this risk. Portfolio changes now underway reflect this heightened sensitivity.Read More

Too Many Worries or Too Few for Pension Fund Sponsors

Mar 20th, 2012 | Filed under: Institutional Investing, Risk management

The top four risks facing pension fund sponsors, in the order of importance assigned to them by those sponsors, are: underfunding of liabilities; asset & liability mismatch; asset allocation; meeting return goals. These are the same four goals that were top rated last year. “The year-over-year consistency in the top four risk factors … is not entirely surprising” the study authors say. The consultancy and actuarial firm Milliman lowered the average discount rate from 4.53 percent in November to 4.25 percent in December 2011. Read More

Axioma to Quants: Beware of Cherry Picking by Optimizers

Mar 15th, 2012 | Filed under: Algorithmic and high-frequency trading

Reliance on optimization tools that in turn rely on standard “user risk factors” will make factor alignment worse, caution three executives of Axioma. An optimizer will cherry pick “the aspects of the model of expected returns that it deems desirable when gauged on the yardstick of marginal contribution to systemic risk.” This amounts to making, and betting on, the erroneous assumption that a lack of correlation with the used risk factors is a lack of systemic risk altogether.Read More

When the Boss is the Rogue Trader

Feb 15th, 2012 | Filed under: Commodities, Risk management

The Global Association of Risk Professionals has surveyed risk managers, analysts and academics to get a sense of the implications of the demise of MF Global Holdings for the role of risk managers. Its findings add to a growing sense that the firm’s last chief executive, Jon Corzine, a former New Jersey Governor and U.S. Senator, was an edge-dwelling trader at heart, eager (as Dealbook put it in an analysis in December) to play a “hands-on role in the firm’s high-stakes risk-taking;” indeed, a man enmeshed in a “romance with risk.”Read More