PRIX – A risk index for global private investors

Sebastian Stöckl, Michael Hanke and Martin Angerer

Journal of Risk Finance, 2017, vol. 18, issue 2, 214-231

Abstract: Purpose - The purpose of this paper is to create a universal (asset-class-independent) portfolio risk index for a global private investor. Design/methodology/approach - The authors first discuss existing risk measures and desirable properties of a risk index. Then, they construct a universal (asset-class-independent) portfolio risk measure by modifying Financial Turbulence of Kritzman and Li (2010). Finally, the average portfolio of a representative global private investor is determined, and, by applying the new portfolio risk measure, they derive thePrivate investorRiskIndeX. Findings - The authors show that this index exhibits commonly expected properties of risk indices, such as proper reaction to well-known historical market events, persistence in time and forecasting power for both risk and returns to risk. Practical implications - A dynamic asset allocation example illustrates one potential practical application for global private investors. Originality/value - As of now, a risk index reflecting the overall risk of a typical multi-asset-class portfolio of global private investors does not seem to exist.

Keywords: Investment application; Multi-asset portfolio; Portfolio turbulence; Risk index (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eme:jrfpps:jrf-09-2016-0118

DOI: 10.1108/JRF-09-2016-0118

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