Braga Risk-Based Approaches to Asset Allocation

Concepts and Practical Applications
1. Auflage 2016
ISBN: 978-3-319-24382-5
Verlag: Springer Nature Switzerland
Format: PDF
Kopierschutz: 1 - PDF Watermark

E-Book, Englisch, 103 Seiten

Reihe: SpringerBriefs in Finance

This book focuses on the concepts and applications of risk-based asset allocation. Markowitz's traditional approach to asset allocation suffers from serious drawbacks when implemented. These mainly arise from the estimation risk associated with the necessary input the most critical being expected returns. With the financial crisis, there has been an increasing interest in asset allocation approaches that don't need expected returns as input, known as risk-based approaches. The book provides an analysis of the different solutions that fit this description: the equal-weighting approach, the global minimum-variance approach, the most diversified portfolio approach and the risk parity approach. In addition to a theoretical discussion of these, it presents practical applications in different investment environments. Three different evaluation dimensions are considered to put these approaches to the test: financial efficiency, diversification and portfolio stability.

Maria Debora Braga is Full Professor of Financial Markets and Institutions. She teaches at University of Valle d'Aosta and at SDA Bocconi School of Management. She received her Ph.D in Banking and Finance from Bocconi University and the M.Sc. in Business Administration from the University of Parma. She was Visiting Scholar at the University of London (Birkbeck College) during her Ph.D. and recently she has been Visiting Researcher at Cass Business School (City University London). She is a member of the Italian Scientific Committee of the European Financial Planning Association (€FPA). 

Autoren/Hrsg.

Braga, Maria Debora

Inhaltsverzeichnis

1;Contents;7
2;1 Introduction;9
3;2 The Traditional Approach to Asset Allocation;11
3.1;Abstract;11
3.2;2.1 A Short Review of the Traditional Markowitz Model for Asset Allocation;11
3.3;2.2 An Analysis of Markowitz's Portfolios: Drawbacks and Motivations;17
3.4;References;23
4;3 Risk-Based Approaches to Asset Allocation: The Case for Risk Parity;24
4.1;Abstract;24
4.2;3.1 The Distinguishing Characteristics of the Risk-Based Approaches;24
4.3;3.2 The Theoretical Background and Argument for Risk Parity;26
4.4;3.3 The Naïve Risk Parity Strategy;31
4.5;3.4 The Optimal Risk Parity Strategy;34
4.6;3.5 Risk Parity Strategy and Leverage;40
4.7;3.6 Risk Parity Strategy and the Modern Portfolio Theory Framework;43
4.8;3.7 Potential Evolution of Risk Parity Strategy;45
4.9;References;48
5;4 The Different Risk-Based Approaches to Asset Allocation;49
5.1;Abstract;49
5.2;4.1 Not Only Risk Parity, What Else?;49
5.3;4.2 The Equally-Weighted Approach;50
5.4;4.3 The Global Minimum-Variance Approach;53
5.5;4.4 The Most Diversified Portfolio Approach;56
5.6;References;61
6;5 Application of the Risk-Based Approaches to Asset Allocation;62
6.1;Abstract;62
6.2;5.1 Description of the Datasets Considered for Asset Allocation Experiments;62
6.3;5.2 Implementation of the Empirical Investigation;71
6.4;5.3 Methodology and Criteria for Evaluating the Risk-Based Approaches;76
6.5;5.4 Main Findings and Conclusions;83
6.6;References;95
7;Appendix Risk-Based Portfolio Compositions Across the Asset Allocation Experiments;97