RT Journal Article
SR Electronic
T1 The Economic Value of Forecasting Left-Tail Risk
JF The Journal of Portfolio Management
FD Institutional Investor Journals
SP 114
OP 123
DO 10.3905/jpm.2016.42.3.114
VO 42
IS 3
A1 James X. Xiong
A1 Thomas M. Idzorek
A1 Roger G. Ibbotson
YR 2016
UL https://pm-research.com/content/42/3/114.abstract
AB The authors show that it is possible to reduce tail risk without giving up much return. The key is to forecast forward-looking skewness, which will facilitate the identification of a sweet spot for a mean–variance–skewness investor. In practice, forecasting skewness can help the popular low-volatility strategy to reduce tail risk without lowering the Sharpe ratio. The authors’ findings could improve the usefulness of traditional diversification, which typically lowers variance but also results in skewness loss.TOPICS: Volatility measures, tail risks