Turning Tail Risks into Tailwinds
The Journal of Portfolio Management, 2021 ‘Multi-asset’ Special Edition
Posted: 26 Feb 2021
Date Written: December 4, 2020
This study compares a broad range of risk models for managing multi-asset portfolios. The investment universe is extended to a range of systematic strategies with varying risk and return profiles. Focusing on risk parity portfolios, it is shown that considering tail risks can successfully reduce negative asymmetry and sharp losses. Extreme risk theory is of particular help in finding the right allocation to defensive systematic strategies in the portfolio.
Keywords: Risk parity, tail risk, systematic investing, trend following, put underwriting, spectral risk measures, decision theory, cumulative prospect theory, Cornish-Fisher expansion, power-law distributions, copula, vine copula
JEL Classification: C10, C30, C60, G11
Suggested Citation: Suggested Citation