Risk Without Return
AbstractRisk-only investment strategies have been growing in popularity as traditional in- vestment strategies have fallen short of return targets over the last decade. However, risk-based investors should be aware of four things. First, theoretical considerations and empirical studies show that apparently dictinct risk-based investment strategies are manifestations of a single effect. Second, turnover and associated transaction costs can be a substantial drag on return. Third, capital diversification benefits may be reduced. Fourth, there is an apparent connection between performance and risk diversification. To analyze risk diversification benefits in a consistent way, we introduce the Risk Diversification Index (RDI) which measures risk concentrations and complements the Herfindahl-Herschman Index (HHI) for capital concentrations.
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Bibliographic InfoPaper provided by arXiv.org in its series Papers with number 1307.0114.
Date of creation: Jun 2013
Date of revision: Sep 2013
Publication status: Published in Journal of Investment Strategies (2)2: 111-120, 2013
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Web page: http://arxiv.org/
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