RiskTech Forum

Axioma: A More Complete View of Equity Portfolio Risk

Posted: 17 July 2017  |  Source: Axioma Inc.


Best practice in quantitative analysis of equity portfolios advocates matching the target portfolio with the representative risk model, i.e., a single country model for a single country portfolio, a regional model for a regional portfolio, and a global model for a global portfolio. According to the theory, restricting the model to the appropriate region and asset class should provide a better fit to the assets in the portfolio and limit the amount of specification error, compared with a model built on a much wider range of assets. But are we letting the wish be the father of the thought, and is this one of those times when breaking the rules — or at least bending them a little — can actually have positive consequences?

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