Prioritizing risks

Auke Plantinga

Chapter 6 in Understanding Investment Risk and Return, 2025, pp 124-144 from Edward Elgar Publishing

Abstract: This chapter discusses how to broaden risk management by including alternative approaches in addition to the investor's current investment management approach. Risk management is often tailored towards the investor's strategies and policies. The proposed approach invites investors to use risk attribution as an inspiration for improving the investment process with new strategies or research ideas. By including strategies outside the one being executed by the investor, it is possible to improve risk attribution and learn about hidden risks. The chapter illustrates the approach in the context of dedicated investment strategies with a hierarchical top-down investment process that focuses on policy decisions, market timing decisions, and security selection decisions. The analysis is based on a Monte Carlo simulation study.

Keywords: Risk management; Risk attribution; Market timing; Security selection; Investment process; Monte Carlo simulation (search for similar items in EconPapers)
Date: 2025
ISBN: 9781035339716
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