RT Journal Article
SR Electronic
T1 Risk On/Risk Off
JF The Journal of Portfolio Management
FD Institutional Investor Journals
SP 28
OP 39
DO 10.3905/jpm.2012.38.3.028
VO 38
IS 3
A1 Wai Lee
YR 2012
UL https://pm-research.com/content/38/3/28.abstract
AB The phrase “risk on/risk off” may now be ingrained in the vernacular of global investors. Lee attempts to crystallize what risk on/risk off really means by analyzing an extreme state of the market when the correlation of all assets is perfect. He derives a set of normative results of how assets should behave in relation to the investment opportunity set. Although his results do not provide guidance on the interpolation between a given state and the extreme state of perfect correlation, Lee believes that his analysis can serve as a compass for the investment decision-making process in the event that investors believe the market is moving toward or away from a risk-on/ risk-off environment. Lee discusses the investment implications in relation to the risk parity portfolio, global asset allocation, and active portfolio management.TOPICS: Financial crises and financial market history, volatility measures, VAR and use of alternative risk measures of trading risk