Tail Risk Reduction Strategies
RETHINKING VALUATION AND PRICING MODELS: LESSONS LEARNED FROM THE CRISIS AND FUTURE CHALLENGES, C.S. Wehn, G.N. Gregoriou, C. Hoppe, eds., Elsevier
Posted: 28 Mar 2012
Date Written: January 30, 2012
We analyze a number of systematic investment strategies that intend to reduce tail risk. Using Extreme Value Theory, we calculate Value at Risk and Expected Shortfall measures. A CAPM and down- and upside beta framework is used to study investment returns over different asset classes. We find that some mechanical strategies generate average compounded returns similar to those of the buy-and-hold strategy, and that tail risks are indeed reduced significantly.
Keywords: tail risk, investment strategy, technical analysis
JEL Classification: C53, G11, G12, G14
Suggested Citation: Suggested Citation