Strategic Risk Management: Out-of-Sample Evidence from the COVID-19 Equity Selloff

11 Pages Posted: 3 Aug 2020

See all articles by Campbell R. Harvey

Campbell R. Harvey

Duke University - Fuqua School of Business; National Bureau of Economic Research (NBER)

Edward Hoyle

Man AHL

Sandy Rattray

Man Group plc

Otto Van Hemert

Man AHL

Date Written: July 18, 2020

Abstract

Over the 2016-2019 period, we released a series of research papers on the topic of “strategic risk management”, or the embedding of risk management into investment strategy design. We show that key risk controls that we introduced materially helped during the sharp equity market selloff in February-March 2020, when the COVID-19 pandemic accelerated. First, faster trend following and long-short profitability stock strategies performed well during the equity market selloff. Second, responsive volatility targeting reduced positions dramatically ahead of the most volatile period in March 2020, and so improved both the return and risk profile at that time. Third, strategic rebalancing rules helpfully called for keeping an underweight in equities (not rebalancing back to target) at the end of February 2020, regardless of using 1-, 3-, or 12-month trend systems to base the rebalancing rule on.

Keywords: Systemic risk, COVID-19, Pandemic, Drawdowns, Rebalancing, Tail risk, Hedging, Risk management, Volatility targeting, Trend following, Moving-average crossover

JEL Classification: G11, G23, G01, C58

Suggested Citation

Harvey, Campbell R. and Hoyle, Edward and Rattray, Sandy and van Hemert, Otto, Strategic Risk Management: Out-of-Sample Evidence from the COVID-19 Equity Selloff (July 18, 2020). Available at SSRN: https://ssrn.com/abstract=3655196 or http://dx.doi.org/10.2139/ssrn.3655196

Campbell R. Harvey (Contact Author)

Duke University - Fuqua School of Business ( email )

Box 90120
Durham, NC 27708-0120
United States
919-660-7768 (Phone)

HOME PAGE: http://www.duke.edu/~charvey

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Edward Hoyle

Man AHL ( email )

Riverbank House
2 Swan Lane
London, EC4R 3AD
United Kingdom

Sandy Rattray

Man Group plc

Riverbank House
2 Swan Lane
London, EC4R 3AD
United Kingdom

Otto Van Hemert

Man AHL ( email )

Riverbank House
2 Swan Lane
London, EC4R 3AD
United Kingdom

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