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White Paper
Understanding the Volatility Risk Premium
May 11, 2018
The volatility risk premium (VRP) represents the compensation that investors earn for providing protection against market losses. We explain the reasons why it may exist and explore its historical performance with a simple option-selling strategy.
White Paper
Risk Parity, Risk Management and the Real World
April 1, 2011
At its core, risk parity is an argument about the importance of diversification. Long term, we think the best risk parity portfolios will be those that both adopt a dynamic approach to risk management and have a plan to preserve capital in a crisis.
White Paper
Avoiding Unintended Country Bets in Global Equity Portfolios
April 1, 2011
Country risk is a key driver of individual stock returns, especially in emerging markets. We present several approaches to constructing active global stock portfolios as failing to control for country membership in stock returns may lead to significant misallocation of risk.
Working Paper
Liquidity and Risk Management
February 1, 2007
This paper provides a model of the interaction between risk-management practices and market liquidity. We find that a feedback effect can arise: Tighter risk management leads to market illiquidity, which then further tightens risk management.
White Paper
Enhanced Portfolio Optimization
March 2, 2020
We show how to identify the portfolios that cause problems in standard mean-variance optimization (MVO) and develop an enhanced portfolio optimization (EPO) method that addresses the problems. Applying EPO on several realistic datasets, we find significant gains relative to standard benchmarks.
Journal Article
Multi-Period After-Tax Reporting: A Practical Solution
March 29, 2018
We propose an after-tax performance report aimed at enhancing wealth preservation and accumulation for taxable investors.
Journal Article
A Historical Perspective on Time-Varying Expected Returns
February 8, 2017
Investors naturally think about the expected returns of bonds based on their market yields, thus assuming time-varying expected returns.
White Paper
Chasing Your Own Tail (Risk)
July 1, 2011
The financial crisis of 2008 made investors painfully aware of tail risk. We present several approaches, when used in combination, may be effective in reducing tail risk.
Journal Article
Which Risks Have Been Best Rewarded?
December 1, 2004
An empirical study examines the consistency of rewards for bearing various types of risks in U.S.
Journal Article
Working Your Tail Off: Active Strategies vs. Direct Hedging
June 1, 2015
Economic theory and empirical evidence support the idea that investors should, over the long term, be compensated for bearing risk.