Equity Investment Strategy

The Impact of Estimation Error on Latent Factor Model Forecasts of Portfolio Risk (forthcoming in the Journal of Portfolio Management) was authored by Stephen Bianchi (Risk Center Affiliate), Lisa Goldberg (CDAR Co-Director), and Allen Rosenberg (Senior Quantitative Analyst at State Street Global Exchange). From the abstract: “In this article, the authors measure the impact of estimation error on latent factor model forecasts of portfolio risk and factor exposures. In markets simulated with a Gaussian return generating process, the authors measure errors in forecasts for equally weighted and long-only minimum variance portfolios constructed from a universe of 500 securities.”

Value investing is the orderly pursuit of underpriced securities.  In “Restoring Value to Minimum Variance,”  CDAR Co-Director Lisa Goldberg, Ran Leshem and Patrick Geddes demonstrate the benefit of adding a value tilt to minimum variance portfolio, which became expensive in the wake of the financial crisis.

In “Optimizing Value,” Lisa Goldberg, Ran Leshem and Alan Cummings compare a range of implementations of a value tilt, and  illustrate the benefits of factor-based optimization. You can download a free copy of the paper here.

CDAR Co-Directors Robert M. Anderson and Lisa R. Goldberg, with Stephen W. Bianchi, published “Will My Risk Parity Strategy Outperform?” in Financial Analysts Journal.  The paper won a Graham and Dodd Scroll Award for 2012. (Copyright 2012, CFA Institute. Reproduced and republished from Financial Analysts Journal with permission from CFA Institute. All Rights Reserved.)