Correlations play an important role in the construction of investment portfolios. In this research note, we explain why the manipulation of a valid correlation matrix is challenging. We also propose three methods to perform the following tasks: 1) Increase all correlations such that they...

We consider it essential for investment managers, risk managers and investors to understand contributions to risk-adjusted performance and attribute differences in risk-adjusted performance, between portfolios to investment decisions on the level of meaningful portfolio segments. Recent advances...

We discuss the widespread belief that using a higher data frequency, i.e. calculating with more observations, will lower estimation risk. For example, it is often believed that calculating annualized volatility from daily returns will be more “accurate” than calculating annualized volatility...

We study the effect of central banks' international reserve hoardings on the composition of equity capital inflows, namely the ratio of portfolio equity investment (PEI) to foreign direct investment (FDI). Foreign investors' decisions regarding the location and the type of equity capital...

We present empirical evidence for 47 liquid stocks from the SPI universe that the diversification potential remained intact during the Financial Crisis. This contradicts the widespread believe that diversification has failed and has major implication for the risk management approach used in...

Portfolio theory got it all wrong: asset weights are not decision variables, because security prices a portfolio manager does not have full control over asset prices. In this note, we are trying to create awareness that real-valued allocations which have been calculated from numerical portfolio...

Ex post volatility is defined as dispersion of ex post portfolio returns over the measurement period. Ex post volatility takes into account the variability in asset returns and changes of asset weights over time due to trading and drift. Ex ante volatility, on the other hand, is defined as...

We explain the variability of the mean-variance efficient frontier over time with a statistical three factor model. For an asset universe consisting of 22 stocks listed in Switzerland, the model explains more than 99% of the time variations in the efficient frontier.The three factors can be...