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"Efficient Replication of Factor Returns: Theory and Applications",

Topic: Factor and Risk Modeling | Asset Class: Equities

We present alternative methods for constructing factor mimicking portfolios in practice. We illustrate how portfolios with a limited number of assets and relatively low turnover can be used to track pure factor returns. These portfolios provide an effective instrument to support the practice of investment management. We illustrate how they can be used to hedge out unintended factor exposures of a passive benchmark thus facilitating the optimal management of beta exposure. We illustrate how they can be used to hedge out unintended factor exposures of an active strategy thus isolating pure alpha and facilitating the management of alternative sources of alpha.

Publication: The Journal of Portfolio Management
Authors: CAVAGLIA Stefano, MELAS Dimitris, SURYANARAYANAN Raghu

 

"The Effects of Risk Aversion on Optimization", MSCI Barra Research Insight, February 2010

Topic: Portfolio Construction and Optimization | Asset Class: Equities, Fixed Income, Multi-Asset Class

In this paper, we examine the influences of risk aversion on various aspects of portfolio optimization.  Our main message is that the risk aversion parameters in the Barra Optimizer provide users with the flexibility to control or adjust the risk levels of their optimal portfolios.  They are valuable tools for portfolio managers to explore and customize their portfolio optimization results and investment processes.

Publication: The Effects of Risk Aversion on Optimization
Authors: LIU Scott, XU Rong

 

"Multi-Currency Performance Attribution",

Topic: Performance Analysis | Asset Class: Multi-Asset Class

The two main drivers of global investment performance are local asset returns and currency exchange rate returns. These two sources represent distinct investment decisions, and should be attributed independently, as argued by Singer and Karnosky. This article presents a refined and generalized version of the Singer-Karnosky model  for multi-currency attribution.

Publication: Journal of Performance Management
Authors: DAVIS Ben, MENCHERO Jose

 

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