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Peter Shepard, MSCI: Second Order Risk

March 7 @ 11:00 am - 12:30 pm

Managing a portfolio to a risk model can tilt the portfolio toward weaknesses of the model. As a result, the optimized portfolio acquires downside exposure to uncertainty in the model itself, what we call “second order risk.” We propose a risk measure that accounts for this bias. Studies of real portfolios, in asset-by-asset and factor model contexts, demonstrate that second order risk contributes significantly to realized volatility, and that the proposed measure accurately forecasts the out-of-sample behavior of optimized portfolios.

Read the paper this talk is based on: shepard_paper



Details

Date:
March 7
Time:
11:00 am - 12:30 pm
Event Category:

Venue

639 Evans Hall at UC Berkeley
639 Evans Hall
Berkeley, CA 94720 United States
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