Portfolio risk management in a data-rich environment

Mohammed Bouaddi () and Abderrahim Taamouti

Financial Markets and Portfolio Management, 2012, vol. 26, issue 4, 469-494

Abstract: We study risk assessment using an optimal portfolio in which the weights are functions of latent factors and firm-specific characteristics (hereafter, diffusion index portfolio). The factors are used to summarize the information contained in a large set of economic data and thus reflect the state of the economy. First, we evaluate the performance of the diffusion index portfolio and compare it to both that of a portfolio in which the weights depend only on firm-specific characteristics and an equally weighted portfolio. We then use value-at-risk, expected shortfall, and downside probability to investigate whether the weights-modeling approach, which is based on factor analysis, helps reduce market risk. Our empirical results clearly indicate that using economic factors together with firm-specific characteristics helps protect investors against market risk. Copyright Swiss Society for Financial Market Research 2012

Keywords: Portfolio weights modeling; Factor analysis; Principal components; Portfolio performance; Value-at-risk; Expected shortfall; Downside probability; C13; C43; G11; G19 (search for similar items in EconPapers)
Date: 2012
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://hdl.handle.net/10.1007/s11408-012-0199-9 (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:kap:fmktpm:v:26:y:2012:i:4:p:469-494

Ordering information: This journal article can be ordered from
http://www.springer. ... nt/journal/11408/PS2

DOI: 10.1007/s11408-012-0199-9

Access Statistics for this article

Financial Markets and Portfolio Management is currently edited by Manuel Ammann

More articles in Financial Markets and Portfolio Management from Springer, Swiss Society for Financial Market Research Contact information at EDIRC.
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().