This paper investigates whether the use of robust covariance improves portfolio performance and, in the presence of uncertainty, whether the 1/N strategy is as good as you think. In addition to sample covariance, we use a battery of robust covariance matrix. Our empirical evidence has two...

Linear multifactor models are of great importance in portfolio construction and risk management since they provide market dimensionality reduction, which has numerous useful implications. In particular, factor models reduce the dimensionality of the asset covariance matrix, allowing for better...

The quantitative practice of portfolio selection aims to select the in-sample optimal portfolio that is robust out of sample. However, at each estimation period, the conventional method is selection by solving a given objective function, without a learning mechanism, or training. This paper...

Investors often adopt mean-variance efficient portfolios for achieving superior risk-adjusted returns. However, such portfolios are sensitive to estimation errors, which affect portfolio performance. To understand the impact of estimation errors, I develop simple and intuitive formulas of the...

Tail risk refers to the possibility that a rare event would adversely affect the value of a portfolio in a significant manner. It became much more relevant due to recent periods of strong market turbulence.We describe how to quantify such risk, which tail risk protection strategies were...

I jointly treat two critical issues in the application of mean-variance portfolios, i.e., estimation risk and portfolio instability. I find that theory-based portfolio strategies known to outperform naive diversification (1/N) in the absence of transaction costs, heavily underperform it under...

GLOBAL FINANCE LIQUIDITY RISK REVISITED: JP Morgan Alternative Assets Portfolio Liquidity Assessment Framework & Models: $500 Billion Fund of Funds: 17 Asset ClassesPresentations atJP Morgan World HQ, 270 Park Ave, Manhattan, NY, USAToJP Morgan Global Head of Quant Research & Analytics, JP...

Banks must manage their trading books, not just value them. Pricing includes valuation adjustments collectively known as XVA (at least credit, funding, capital and tax), so management must also include XVA. In trading book management we focus on pricing, hedging, and allocation of prices or...

This paper adopts a copula approach at assessing the dependence structure of the U.S. equity market. Seven types of copulas are considered: Gaussian, Student t, Clayton, rotated Clayton, Gumbel, rotated Gumbel and BB4. By adopting a twenty-two year sample of daily returns on the seventeen Fama...