How Did Risk-Reduced Investment Strategies Perform During the Corona Crash? Lessons Learned from the Crisis for the Asset Management Industry

Friedrich Thießen and Jörg Müller

Chapter 4 in Modern Finance and Risk Management:Festschrift in Honour of Hermann Locarek-Junge, 2022, pp 55-77 from World Scientific Publishing Co. Pte. Ltd.

Abstract: Based on the Corona crash of February 2020, this chapter examines three risk-reduced investment strategies focusing on equities concerning their suitability for limiting investment risks (long-short approaches, multi-asset approaches, value-protection approaches). The sample is about 100 funds. The results show that the strategies limit the risks on average for all funds — mainly through liquidity reserves and broad allocations. The funds show heterogeneous outcomes within strategies and homogeneous across strategies. This is surprising. It is due to the freedom of fund management. Information in the sales documents is vague and undefined. Fund managers do not disclose procedures. Fund categories are used as marketing instruments. They do not reflect definitive intention. Consequently, the fact that a fund belongs to a strategy group offers little indication of the results to be expected in the event of a crisis. Investors must provide themselves beyond the sales documents with additional information about the fund management’s real intentions. Only funds that very decisively restrict the management’s actions show the expected results.

Keywords: Finance; Risk Management; Commodities; Energy Finance; Risk; Cryptocurrencies; Asset Management; Banking; Behavioral Finance; Behavioural Finance; Markowitz; Portfolio Selection; Asset Allocation; Crowdfunding; COVID; Pandemic; Corona; Investment Strategies; Low-Risk Investments; Social Banks; Excess Liquidity; Cost of Capital; Utilities; Network Industries; Private Equity; Small and Medium-Sized Enterprises; Black Swan; Statistical Inference; Maximum Likelihood; Bayesian Methods; Tail Risks; Conditional Value-at-Risk; Tail Nonlinearly Transformed Risk; Capital Constraints; Bank Regulation; Subjective Risk Assessment; Expert Knowledge; Model Risk; Risk Factors; Option Pricing; Volatility; Resilience; Supply Chains; Disruption; Systemic Risk; Oil; Renewable Energies; Corporate Risk Management; Power Purchase Agreements; Gold; Precious Metals; Dynamic Correlation; Mixed Data Sampling (search for similar items in EconPapers)
JEL-codes: G11 G3 G32 G4 (search for similar items in EconPapers)
Date: 2022
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