Journal of Index Investing: Managing Risks Beyond Volatility

categories: Indexes, Portfolio Management Analytics, Americas, EMEAI, Factor and Risk Modeling, Investing (Investment Management), Portfolio Construction and Optimization, Asia Pacific, Asset Owners, Equities, Research Paper, MELAS Dimitris, Asset Managers (Quant or Fundamental), ALIGHANBARI Mehdi, DOOLE Stuart

Minimum volatility strategies can be adapted to address risks beyond price volatility, such as concentration, sustainability and crowding risks. Adding a sustainability constraint had only a small effect on the risk reduction properties. Introducing constraints on the value exposure ensured the market-relative valuations of the strategy remained attractive for only a small increase in realized volatility. In contrast, the standard minimum volatility methodology demonstrated attractive diversification; adding an explicit diversification constraint increased exposure to residual volatility and had a negative impact on risk reduction and risk-adjusted performance. The article was published in the Fall 2017 issue of the Journal of Index Investing


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