Value stocks outperform growth stocks. The academic literature provides two competing interpretations on what drives the value premium: exposure to risk factors or mispricing of securities. Existing empirical studies, which are largely based on U.S. data, have not conclusively rejected one...

Value stocks outperform growth stocks. The academic literature provides two competing interpretations on what drives the value premium: exposure to risk factors or mispricing of securities. Existing empirical studies, which are largely based on U.S. data, have not conclusively rejected one...

Standard risk management approaches fail to consider parameter uncertainty, which has led to improper risk management. Blind faith in parameter estimates has too often led to blind faith in the resulting VAR outputs, and when these estimates are too often exceeded the proposed solution is...

Managing risk successfully requires a detailed understanding of the distributions from which random shocks to asset prices are drawn. However, there is uncertainty in both the actual distribution of returns and the parameters characterizing the distribution. In this chapter, we focus on the...

The risks embedded in asset-based risk parity portfolios are explored using a simple, economically motivated approach. Such an approach can go a long way toward demystifying and making more explicit the drivers of performance and risks of asset-based risk parity portfolios. Investors in risk...

This article presents two simple algorithms to calculate the portfolio weights for a risk parity strategy, where asset class covariance information is appropriately taken into consideration to achieve “true” equal risk contribution. Previous implementations of risk parity either used a...