Tail Risk Management for Multi-Asset Multi-Factor Strategies

Risk & Reward, 2018, 4th issue, pp. 14-20

9 Pages Posted: 20 Feb 2019

See all articles by David Chambers

David Chambers

University of Cambridge - Judge Business School; CEPR

Harald Lohre

Robeco Quantitative Investments; Lancaster University Management School

Carsten Rother

Invesco; University of Hamburg

Date Written: January 8, 2019

Abstract

Multi-asset multi-factor portfolio allocation is typically centred around a risk-based allocation paradigm, often striving for maintaining equal volatility risk budgets. Given that the common factor ingredients can be highly skewed, we specifically incorporate the notion of tail risk management into the construction of multi-asset multi-factor portfolios. Indeed, we find that the minimum CVaR concentration approach of Boudt, Carl and Peterson (2013) effectively mitigates the dangers of tail risk concentrations. Yet, diversifying across multiple assets and style factors can be in and of itself a good means of tail risk management, irrespective of the risk-based allocation technique employed.

Keywords: Factor Investing, Tail Risk Management, Maximum Diversification, Risk Parity

JEL Classification: G11, D81

Suggested Citation

Chambers, David and Lohre, Harald and Rother, Carsten, Tail Risk Management for Multi-Asset Multi-Factor Strategies (January 8, 2019). Risk & Reward, 2018, 4th issue, pp. 14-20, Available at SSRN: https://ssrn.com/abstract=3329784

David Chambers

University of Cambridge - Judge Business School ( email )

Trumpington Street
Cambridge, CB2 1AG
United Kingdom
44 (0)1223 339700 (Phone)

CEPR ( email )

London
United Kingdom

Harald Lohre (Contact Author)

Robeco Quantitative Investments ( email )

Weena 850
Rotterdam, 3011 AG
Netherlands

Lancaster University Management School

Bailrigg
Lancaster LA1 4YX
United Kingdom

HOME PAGE: http://www.lancaster.ac.uk/lums/people/harald-lohre

Carsten Rother

Invesco ( email )

An der Welle 5
Frankfurt am Main, 60322
Germany

University of Hamburg ( email )

Allende-Platz 1
Hamburg, 20146
Germany

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