Exotic Beta Revisited

Posted: 23 Sep 2014

Date Written: September 22, 2014

Abstract

The authors propose portfolios comprising simple and intuitive risk premiums (exotic betas) that are transparent and cost effective, perform well in different market environments, and are uncorrelated with equities. They are an alternative to traditional portfolios that are defined by their asset class allocations. The authors show that exotic beta investing offers a better riskÔÇôreturn profile than risk parity and hedge fund replication and that adjusting exposures to capture variation in risk premiums further improves performance.

Keywords: Portfolio Management, Asset Allocation, Risk Management, Portfolio Concepts from Capital Market Theory, Asset-Pricing Models, Portfolio Construction and Revision, Risk Management, Portfolio Risk Management, Risk Management Strategies

Suggested Citation

Carhart, Mark M. and Cheah, Ui-Wing and De Santis, Giorgio and Farrell, Harry and Litterman, Robert, Exotic Beta Revisited (September 22, 2014). Financial Analysts Journal, Vol. 70, No. 5, 2014, Available at SSRN: https://ssrn.com/abstract=2499728

Mark M. Carhart (Contact Author)

Kepos Capital LP ( email )

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Ui-Wing Cheah

Kepos Capital ( email )

620 Eighth Avenue
New York, NY 10018
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Giorgio De Santis

Kepos Capital ( email )

620 Eighth Avenue
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Harry Farrell

Kepos Capital ( email )

620 Eighth Avenue
New York, NY 10018
United States

Robert Litterman

Kepos Capital

620 Eighth Avenue
New York, NY 10018
United States

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