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Measuring style tilting and decomposing style risk

Author

Listed:
  • Theofanis Darsinos

    (Faculty of Economics and Politics, University of Cambridge, Austin Robinson Building)

  • Stephen Satchell

    (Faculty of Economics and Politics, University of Cambridge, Austin Robinson Building)

Abstract

In this paper the authors examine the tendency of portfolio managers to under/over-weight portfolios with respect to a particular style such as book-to-price ratio, dividend yield, etc. The authors provide a test statistic for style tilting and a decomposition of ‘active’ risk for large cross-sectional portfolios with respect to exposures of a given attribute. The decomposition classifies risk into three categories — symmetric covariation, asymmetric covariation and variation — and allows the investment style to be identified and quantified.

Suggested Citation

  • Theofanis Darsinos & Stephen Satchell, 2004. "Measuring style tilting and decomposing style risk," Journal of Asset Management, Palgrave Macmillan, vol. 5(1), pages 64-71, June.
    • Handle: RePEc:pal:assmgt:v:5:y:2004:i:1:d:10.1057_palgrave.jam.2240128
    DOI: 10.1057/palgrave.jam.2240128
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