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Matthias Knab, Opalesque: Pricing risk factor premia accurately is the cornerstone of optimal portfolio creation. New research by SFI
professors Ines Chaieb and Olivier Scaillet from the University of Geneva and coauthor Professor Hugues
Langlois from HEC Paris shows that reduced portfolio risk can be achieved by using time-varying risk factor
premia estimated from individual stocks instead of from the portfolios or indices often used by asset
managers.
Several risk factors influence the risk-return profiles of financial assets and
portfolios. Dynamic approaches to asset allocation incorporate such factors in the portfolio construction
process. One such strategy that attracted considerable attention in recent years is smart beta. These
strategies use factors as their investment strategy, mostly on aggregated levels such as portfolios or
indices, to estimate world-, regional-, and country-specific risk factors. But not all factor exposures
compensate through higher returns all the time. Risk premiums are time varying because of economic
cycles and changing market integration.
Asset managers often use aggregated measures such as portfolios or indices to estimate world-, regional-,
and country-specific risk factors. A new research study by SFI professors Ines Chaieb and Olivier Scaillet
from the University of Geneva and coauthor Professor Hugues Langlois from HEC Paris, however, shows
that reduced portfolio risk can be achieved by extracting information from a large num...................... To view our full article Click here
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