Investors care about more than just returns. They also care about risk. Thus, prudent investors include consideration of strategies that can provide at least some protection against adverse events that lead to left tail risk (portfolios crashing). The cost of that protection (the impact on expected returns) must play an important role in deciding whether to include them. For example, buying at-the-money puts, a strategy that eliminates downside risk, should have returns no better than the risk-free rate of return, making that a highly expensive strategy.
Who among us wouldn't want to be the savior that predicts a market crisis and saves our clients from losses in capital -- or even better -- profits from them? A central topic of interest for academics is whether there are more precise tools to predict financial crises. Those who believe so dedicate their efforts to finding early warning indicators.
Negative outcomes from unconditional long exposure to the VIX led Campasano to examine the performance of an Enhanced Portfolio that dynamically invests in the S&P 500 Index and VIX futures.
Liquidity—the ability to buy and sell significant quantities of a given asset quickly, at low cost, and without a major price concession—is valuable to investors. Therefore, they demand a premium as compensation for the greater [...]
Arnold Polanski, Evarist Stoja, Frank WindmeijerJournal of Applied Econometrics, 2019A version of this paper can be found here.Want to read our summaries of academic finance papers? Check out our Academic Research Insight category What are [...]
Gold, the Golden Constant, COVID-19, "massive Passives," and Déjà Vu Claude Erb, Campbell R. Harvey, Tadas ViskantaA version of this paper can be found here.Want to read our summaries of academic finance papers? Check out [...]
Some Observations on Trend Following: A Binomial Perspective David M. ModestWorking Paper, QLS Partners LPA version of this paper can be found hereWant to read our summaries of academic finance papers? Check out our Academic Research [...]
Richard D.F. Harris , Linh H. Nguyen and Evarist Stoja Journal of International Financial Markets, Institutions, and Money, 2019A version of this paper can be found hereWant to read our summaries of academic finance papers? Check [...]
It has been well documented both that stock returns have much fatter tails than a normal distribution would generate, and that tail events occur much more frequently than a normal curve would predict.[ref]editor's note: This [...]
Given the recent market decline, we thought it would be helpful to review some of our blog posts from the past that may be relevant to the current crisis atmosphere. These posts focus on research [...]
The Best of Strategies for the Worst of Times: Can Portfolios Be Crisis Proofed? Campbell R. Harvey, Edward Hoyle, Sandy Rattray, Matthew Sargaison, Dan Taylor, and Otto Van HemertThe Journal of Portfolio ManagementA version of [...]
Pathetic Protection: the Elusive Benefits of Protective Puts Roni IsraelovJournal of Alternative Investments, Winter 2019A version of this paper can be found hereWant to read our summaries of academic finance papers? Check out our Academic Research Insight category What are the [...]
This article proposes tail risk hedging (TRH) as an alternative model for managing risk in investment portfolios. The standard risk management approach involves a significant allocation to hiqh-quality bonds. However, this approach has historically reduced [...]