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Research Insight - Constructing Quality Risk Models - June 2013

In this Research Insight, we outline the building blocks essential to constructing an effective standard risk model. We then turn to how risk models are used in the investment process — that is, constructing efficient portfolios and attributing their risk and return. Finally, we describe the best practices of proprietary model construction, including an empirical investigation of the economic impact of using proprietary models in portfolio optimization.