ÿþ<!DOCTYPE HTML PUBLIC "-//W3C//DTD HTML 4.01 Transitional//EN"> <html> <head> <title>AQR Capital</title> <meta http-equiv="Content-Type" content="text/html; charset=iso-8859-1"> <META NAME="TITLE" CONTENT="AQR Capital"> <META NAME="AUTHOR" CONTENT="XCELLENCEIT"> <META NAME="COPYRIGHT" CONTENT="XCELLENCEIT"> <META NAME="KEYWORDS" CONTENT="AQR, CAPITAL"> <META NAME="DESCRIPTION" CONTENT="AQR, CAPITAL, NEWS, INFO"> <META NAME="GENERATOR" CONTENT="crimson"> <META NAME="ROBOTS" CONTENT="index"> <link href="layout/css/default.css" rel="stylesheet" type="text/css"> </head> <body bgcolor="#DCDFE6"> <table width="100%" height="100%" border="0" cellspacing="0" cellpadding="0"> <tr> <td align="center" valign="middle"> <table border="0" cellspacing="0" cellpadding="0" height="100%"> <tr> <td align="right" valign="bottom"><img src="layout/bara_sus1.jpg" width="7" height="7"></td> <td class="top">&nbsp; </td> <td align="left" valign="bottom"><img src="layout/bara_sus2.jpg" width="7" height="7"></td> </tr> <tr> <td width="12" class="left" rowspan="4">&nbsp; </td> <td width="776" height="107" background="layout/en/header1.gif">&nbsp; </td> <td width="13" class="right" rowspan="4">&nbsp; </td> </tr> <tr> </tr> <tr> <td width="776" height="100%"><table border="0" cellspacing="0" cellpadding="0" height="100%"> <tr height="5" bgcolor="#d7def1"><td colspan="3">&nbsp; </td> </tr> <tr> <td align="center" colspan="2"> <img src="layout/en/rb_15iun_04.jpg" border="0" width="776" height="64" alt="research"> </td> </tr> <tr> <!-- the following bgcolor is the left menu column original color was #f0f0f0 !--> <td width="220" height="100%" valign="top" bgcolor="#e5e5e5"> <ul style="list-style:none;padding-top:30px"> <li class="space"><a href="home.htm" class="leftmenblu" >HOME</a> </li> <li class="space"><a href="about.htm" class="leftmenblu" >ABOUT AQR</a> </li> <!--<li class="space"><a href="http://www.google.com" class="leftmenred" >Search Google</a></li>--> <li class="space"><a href="principal_bios.htm" class="leftmenblu" >PRINCIPAL BIOS</a> </li> <li class="space"><a href="research.htm" class="leftmenred" >RESEARCH LIBRARY</a> <li class="space"><a href="RecruitingHome.htm" class="leftmenblu" >CAREER OPPORTUNITIES </a> </li> </li> <li class="space"><a href="legal.htm" class="leftmenblu" >LEGAL </a> </li> <li class="space"><a href="contact.aspx" class="leftmenblu" >CONTACT US</a> </li> <li class="space"><a href="directions.htm" class="leftmenblu" >DIRECTIONS</a> </li> </ul></td> <td width="556" height="100%" bgcolor="white" valign="top"> <table cellpading=0 cellspacing=0 border=0><tr><td style="padding:25px;" valign="top"> <span class="titlu_negru"> <font size="3" color="black" type="">Chasing Your Own Tail (Risk): Five Alternatives to the High Cost of Tail-Hedging</font> </span> <br /><br /><br /> <!--span class="titlu_albastru">Summary</span><br /><br /--> <span class="scris_gri"> "Chasing Your Own Tail (Risk) takes a look at portfolio insurance and five lower-cost alternatives. This paper reviews some of our thoughts on portfolio construction post financial crisis and is in response to the investment community s recent interest in portfolio insurance. <br/> <br/> We argue that portfolio insurance is rarely the right long-term solution for investors. Instead, they can reduce their exposure to tail risk with investment strategies that actually increase expected returns. We propose five ways to do this, which we think are most effective when used in combination: <br/> <br/> <table > <tr><td>&nbsp;</td><td class="scris_gri">1) Diversify by risk, not just by assets  limit tail risk by reducing exposure to extreme events in any one asset class</td></tr> <tr><td>&nbsp;</td><td class="scris_gri">2) Actively manage volatility  reduce exposure sizes when extreme moves are more likely to occur</td></tr> <tr><td>&nbsp;</td><td class="scris_gri">3) Add uncorrelated alternatives  seek beta-neutral exposures that are expected to perform well even in crises (this is not as easy as it sounds, as many  alternatives have significant market risk)</td></tr> <tr><td>&nbsp;</td><td class="scris_gri">4) Take advantage of low-beta equities  reduce exposure to equity beta without reducing exposure to equity premium</td></tr> <tr><td>&nbsp;</td><td class="scris_gri">5) Have a crisis plan before you need one  have a pre-determined plan for severe market stress </td></tr> </table> <br /><br /> </span><br /><br /><b><font color="black">For a copy of this paper, please click here: </font><a href="contact.aspx?link_id=25" class="download_link">Chasing Your Own Tail (Risk)</a><br /></b></td></tr></table> </td> </tr> <tr bgcolor="#d7def1" height="15"><td colspan="2">&nbsp; </td></tr></table></td></tr> <tr> <td bgcolor="#b0b3ba" style="padding-top:2px;padding-right:10px;" align="right" valign="top"> <a href="home.htm" class="white">HOME</a><font color="white">|</font> <a href="about.htm" class="white">ABOUT AQR</a><font color="white">|</font> <a href="principal_bios.htm" class="white">PRINCIPAL BIOS</a><font color="white">|</font> <a href="research.htm" class="white">RESEARCH LIBRARY</a><font color="white">|</font> <a href="RecruitingHome.htm" class="white">CAREER OPPORTUNITIES </a><font color="white">|</font> <a href="contact.aspx" class="white">CONTACT US</a><font color="white">|</font> <a href="directions.htm" class="white">DIRECTIONS</a></td> </tr> <tr> <td align="right" valign="top"><img src="layout/bara_sus3.jpg" width="7" height="7"></td> <td align="right" style="padding-right:20px;" class="copyright1">2004 &copy; AQRCapital.com. 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