In this research note, we will discuss a specific asymmetrical model and build an attribution framework which allows relating the effects of asymmetry on Alpha and Beta relative to a benchmark model, the single-index model with its symmetric Alpha and Beta. We explain the difference between two...

We highlight important and specific characteristics of default risk and methodological implications. In a simulation contrasting independent, Gaussian and Clayton copulas, we also show that joint default probabilities might be a hidden source of risk in conventional portfolio models of default

We are said to live in an “Alpha-centric” world, in which investors supposedly focus on “Alpha”. This demand is met by active investment managers – “Alpha hunters”. This note does presents two conceptual arguments why Alpha does not automatically result in superior risk-adjusted...

Tail risk refers to the shape of the left tail of the distribution of investment returns. Return distributions are traditionally described in terms of their first for moments: mean return, volatility, skewness and kurtosis. Attribution is a descriptive approach used in portfolio analysis to...

We present empirical evidence for 47 liquid stocks from the SPI universe that the diversification potential remained intact during the Financial Crisis. This contradicts the widespread believe that diversification has failed and has major implication for the risk management approach used in...

Portfolio theory got it all wrong: asset weights are not decision variables, because security prices a portfolio manager does not have full control over asset prices. In this note, we are trying to create awareness that real-valued allocations which have been calculated from numerical portfolio...

We explain the variability of the mean-variance efficient frontier over time with a statistical three factor model. For an asset universe consisting of 22 stocks listed in Switzerland, the model explains more than 99% of the time variations in the efficient frontier.The three factors can be...