There are lingering questions in the financial industry regarding the concepts of risk contribution and risk budgeting. The questions stem from both the simple belief that risks are non-additive and a lack of financial intuition behind mathematical definitions of these concepts. This paper...

Applying a multifactor alpha model across a diverse range of stocks is a popular approach to forecast securities' expected returns. This approach assumes that one single return-generating equation provides adequate alpha forecasts - that is, one-size-fits-all. In this paper, we extend prior...

Due to a lack of clear financial interpretation, there are lingering questions in the financial industry regarding the concepts of risk contribution. This paper provides as well as analyzes risk contribution's financial interpretation that is based on expected contribution to potential losses of...

We compare expected value and variance of terminal wealth for two simple but distinctly different portfolio approaches: fixed-weight with regular rebalancing and buy-and-hold with no rebalancing. We carry out statistical analysis under a variety of return assumptions and portfolio settings. For...

In contrast to factor-based “smart beta”, diversification-based “smart beta” assumes that, seemingly “naively”, all investments are just average or the same in some dimension. The four possible dimensions: portfolio weight, expected return, risk-adjusted return, and risk...

"Upside participation and downside protection" is a popular motto for many investors. It has taken on much more significance in recent years in the wake of the global financial crisis. But how do we define and evaluate strategies from the perspective of "upside participation and downside...