The Risk that Risk Will Change

Journal Of Investment Management (JOIM), Fourth Quarter 2009

Posted: 19 Jan 2010 Last revised: 2 Jun 2010

See all articles by Robert F. Engle

Robert F. Engle

New York University - Leonard N. Stern School of Business - Department of Economics; New York University (NYU) - Department of Finance; National Bureau of Economic Research (NBER)

Date Written: January 19, 2010

Abstract

Standard approaches to risk management focus on short-run risks, yet many positions are held for longer periods. Over such holding periods there is a risk that risks will change. In this note several easily implemented approaches to estimating the term structure of risk are proposed based on either statistical or economic criteria. It is argued that some portion of the financial crisis of 2007-2008 was due to the use of short-run risk measures to assess long-term risks.

Keywords: Risk, long-term risk, short-run risk, financial crisis, GARCH, TARCH, spline GARCH. value at risk, hedge portfolio

JEL Classification: G00

Suggested Citation

Engle, Robert F., The Risk that Risk Will Change (January 19, 2010). Journal Of Investment Management (JOIM), Fourth Quarter 2009. Available at SSRN: https://ssrn.com/abstract=1539166

Robert F. Engle (Contact Author)

New York University - Leonard N. Stern School of Business - Department of Economics ( email )

269 Mercer Street
New York, NY 10003
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New York University (NYU) - Department of Finance

Stern School of Business
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New York, NY 10012-1126
United States

National Bureau of Economic Research (NBER)

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