Extreme Events and Portfolio Construction [12]

Go to: Summary | Previous | Next   
Bullet points include: Selection effects (involving non-random choices by market participants) are important behavioural aspects of many actuarial problems. E.g. people who buy annuities tend to be healthier than the average of the population as a whole. And could be important for portfolio construction too. Kemp (2010) explores what would happen if portfolio managers consciously (or unconsciously) selected equity industry mixes that in combination exhibited high kurtosis (e.g. because quantitative ‘signals’ underlying such strategies might stand out because they appeared non-random). 1 in 200 Value-at-Risk (VaR) measures derived purely from volatilities of underlying factors on average c. 4 times too low for such ‘selected’ portfolios

Contents | Prev | Next | Library

Desktop view | Switch to Mobile