Take a closer look at innovations and shifts in investment management and risk assessment.

  • Risk Resolution: A Framework for Generating Custom Risk Models

    At Axioma, we often debate what constitutes a standard multi-asset class (MAC) risk model. First, there is the choice of the risk factors. On the one hand, the standard model should consist of a parsimonious number of risk factors, but on the other hand, it should capture all relevant risk factors for a well diversified portfolio.

    Fabien Couderc and Robert Stamicar Research Paper No. 96
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  • Giving a Boost to Value Performance - with a Little Factor Awareness (and Luck)

    In a piece headlined “Hot-Stock Rally Tests the Patience of a Choosy Lot: Value Investors,” The Wall Street Journal on August 7 detailed the poor performance of Value funds and indices relative to their Growth counterparts. We thought it might be instructive to look at this issue through a risk and attribution lens, using the Russell 1000 Value and Russell 1000 Growth indices.

    Melissa R. Brown, CFA Research Paper No. 95
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  • Factor Correlations Revisited: How a recent shift in market focus affected major factor correlations and portfolio risk

    Since the middle of March this year, we have seen a shift in correlations between equity and foreign exchange risk factors. In this paper, we examine how changes in the correlations of major risk factor types, in particular the relationship between exchange rates and stock markets, affected a global, USD-denominated multi-asset class model portfolio.

    Christoph V. Schon, CFA, CIPM Research Paper No. 94
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  • Adding Alpha by Subtracting Beta: How Quantitative Tools Can Improve a Portfolio's Returns

    Fundamental (discretionary) portfolio managers typically build their portfolios from the bottom up. That is, they identify stocks they expect to beat the market and combine them to create a portfolio. However, fundamental managers can leverage quantitative tools to help identify and lessen potential issues in their portfolio, while still maintaining their investment views and goals. In this paper, we’ll use a “real world” portfolio to illustrate how quantitative tools can improve a portfolio’s realized returns.

    Chris Martin, CAIA, CIPM, Director and Solutions Specialist Research Paper No. 93
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  • Is Risk Really as Low as You Think? - Revisited

    Risk has bumped up against new lows, but not all components of risk are participating equally in the overall decline. We examine which factors are driving risk lower – and which portfolio managers should keep an eye on.  We also use some risk-based signals to determine that a market peak is not imminent. Could be famous last words, of course…

    Melissa R. Brown, CFA Research Paper No. 92
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  • Stress Testing Best Practices

    Previously, we have discussed how optimization techniques can help fixed-income managers construct portfolios, and how stress testing should be part of an optimization framework that includes hedges and overlays. Whether embedded in an optimization framework or not, stress tests are critical from a risk management perspective. This note, which outlines common stress testing techniques along with some best practices, is our first installment in a series of notes involving stress tests.

    Iulian Cotoi and Robert Stamicar Research Paper No. 91
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  • Experimenting with Axioma's New Japan Model

    Axioma recently released a big risk model update for its Japan suites. The breadth and depth of the changes span both the return and risk models, as well as the methodology used to calibrate them. In this paper, we examine the intuition this latest generation of fundamental style factors provides practitioners. The four fundamental styles upon which we will focus are the ones captured by the new profitability, earnings yield, and dividend-yield factors, as well as the revamped growth factor.

    Olivier d’Assier, Managing Director, APAC Research Paper No. 90
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  • Reducing Turnover and Transaction Costs With a New Class of Equity Reversal Signals Based on Volatility Differences

    Short-term momentum (STM) is, perhaps, the most well-known equity reversal signal, but is limited in its real world application due to turnover and transaction costs. In this paper, we present three new equity reversal signals. Each new signal exhibits prototypical reversal behavior, and two of them exhibit roughly half the turnover associated with STM.

    Anthony A. Renshaw, PhD Research Paper No. 89
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  • Fixed-Income Portfolio Optimization

    By using a risk model to analyze a portfolio, managers gain insight into risk and exposures. For example, how would an increase in spread duration in the energy sector impact the risk of a portfolio? Or what is the impact of an overweight to Financials relative to a benchmark? Fixed-income risk models allow us to quantify these questions, which in turn help managers make better decisions around on how they construct and hedge their portfolios.

    Christopher Martin, Kartik Sivaramakrishnan, and Robert Stamicar Research Paper No. 88
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  • Identifying Risks and Revealing Opportunities Sector by Sector: Information Technology

    In this series of articles, we dig deep into the risk characteristics of—and investment opportunities provided by—a number of macroeconomic sectors. Our aim is to help risk model users better understand risk from a sector perspective. The information should be helpful to risk managers, especially at fundamental shops, as well as portfolio managers (PMs) with a sector focus.

    Melissa R. Brown, CFA Research Paper No. 87
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