Crisis Alpha

Tail Hedging Is Not As Easy As You Think

Convexity can provide explosive payoffs from unlikely events. It’s a powerful weapon to wield, but like most weapons, it could be inefficient or even dangerous in the hands of the untrained.

Strategies to Mitigate Tail Risk

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.

Are Financial Crises Predictable?

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.

Portfolio Strategies for Volatility Investing

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.

The Vanishing Illiquidity Premium

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. [...]

Does Gold do What it is Supposed to do?

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 [...]

Ways to Measure Extreme Downside Risk

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 [...]

Is There a Tail Risk Premium in Stocks?

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 [...]

Crisis Proof Your Portfolio: part 1/2

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, [...]

Pathetic Protection via Protective Puts

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 [...]

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