PREDICTING AND DECOMPOSING THE RISK OF DATA-DRIVEN PORTFOLIOS

Sophisticated algorithmic techniques are complementing human judgement across the fund industry. Whatever the type of rebalancing that occurs in the course of a longer horizon, it probably violates ...

Author(s):

Nabil Bouamara

Kris Boudt

Sophisticated algorithmic techniques are complementing human judgement across the fund industry. Whatever the type of rebalancing that occurs in the course of a longer horizon, it probably violates the buy-and-hold assumption. In this article, authors develop the methodology to predict, dissect and interpret the h-day financial risk in data-driven portfolios. Their risk budgeting approach is based on a flexible risk factor model that accommodates the dynamics in portfolio composition directly within the risk factors. Once these factors are defined, they cast portfolio risk measures, such as value-at-risk, into an additive mean-variance-skewness-kurtosis format. The simulation study confirms the gains in accuracy compared to the widespread square-root-of-time rule. Their main empirical findings rely on the two-decade performance of a portfolio insurance investment strategy. Rather than looking at total portfolio risk, they conclude that it is more informative to look inside the portfolio.

Type: EDHEC Publication
Date: le 08/03/2020
Research Cluster : Finance

See Also

Immersion at Station F for start-up challenge finalists !
News
- 13-10-2021
Devised for students with start-up projects on the Pre-Master and Master 1 years of the...
Financing your MBA - are you eligible for a scholarship?
News
- 12-10-2021
How to finance your Global MBA abroad is a critical question you need to think about...
Apprenticeship program: a perfect combination of academic knowledge and professional experience
News
- 12-10-2021
Yiqing Ma joined EDHEC Apprenticeship Track in 2019. She shares insights into the...
CRÉDIT AGRICOLE NORD DE FRANCE, AMUNDI AND CRÉDIT AGRICOLE CIB, PARTNERS OF EDHEC BUSINESS SCHOOL’S MSC IN CLIMATE CHANGE & SUSTAINABLE FINANCE
News
- 08-10-2021
Three major players in the Crédit Agricole Group operating in the banking and finance...