Research and Insights
Articles by Elizabeth Penades
Comparing Specific Risk Forecasting MethodologiesResearch Report | Jun 1, 2005 |
Since specific risk is the only risk that can be reduced through diversification, it is crucial to obtain an accurate specific risk forecast. Stock pickers target specific returns, and the active return on which they base their businesses primarily bears specific risk. Specific risk models are especially vulnerable to misforecasting during periods of rapidly changing risk. Are there specific risk models that can follow such large variations and produce forecasts that do not mislead?...
Portfolio Construction in Europe: Screening Versus OptimizationResearch Report | Jun 1, 2005 |
We compared Screening and Optimization approaches to portfolio construction for the European market using the methodology found in Grinold and Kahn  and Muller . We obtained similar results to those we previously saw in the US market. Optimization clearly outperformed the screening methods, producing the best IRs in 10 out of 12 cases. The worst-performing method was Cap-Weighted Screening. This is because the wide variation in market capitalization within the constructed...