Active risk-based investing

Jurczenko, Emmanuel (Ecole hôtelière de Lausanne, HES-SO // University of Applied Sciences Western Switzerland) ; Teiletche, Jérôme (Cross-Asset Solutions, Unigestion, Geneva)

Risk-based investing is experiencing growing success among investors, although some critics contend that the implicit “no-views” characteristic of these solutions might trigger other forms of risk, such as valuation risk. In this article, the authors introduce an analytical framework that allows investors to add active views on top of a risk-based solution, bridging the gap between risk-based investing and mean-variance portfolio optimization. Starting from a Black-Litterman approach, the authors derive closed-form expressions for the active risk-based portfolio weights and discuss practical implementation aspects. The framework is illustrated with a multi-asset allocation exercise over the period 1974–2016. Using views generated from macroeconomic regime signals, the active risk-based strategy is shown to outperform empirically both passive risk-based strategies and popular methodologies such as Equal-weight or Maximum Sharpe ratio.


Article Type:
scientifique
Faculty:
Economie et Services
School:
EHL
Subject(s):
Economie/gestion
Date:
2018
Pagination:
10 p.
Published in:
Journal of Portfolio Management
Numeration (vol. no.):
2018, vol. 44, no. 3, pp. 56-65
DOI:
ISSN:
0095-4918
Appears in Collection:

Note: The status of this file is: restricted


 Record created 2018-03-05, last modified 2018-12-20

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