@article {Curds150, author = {Ross M. Curds}, title = {Concentrating on Concentration}, volume = {30}, number = {4}, pages = {150--159}, year = {2004}, doi = {10.3905/jpm.2004.150}, publisher = {Institutional Investor Journals Umbrella}, abstract = {Factor models seek to reduce the impact of spurious in-sample correlations on the estimation of a covariance matrix of security returns. Among U.S. equities, market value is concentrated in a small number of assets both across the market and within industry sectors. Over 50\% of market value, for example, is captured by 1\% of assets. This can unwittingly compromise factor model design and result in a significant misprediction of portfolio risk. Correlations may be induced between the specific returns of high-cap securities as an artefact of regression procedures. There are solutions to avoid such mistakes and thus improve the efficacy of risk predictions.}, issn = {0095-4918}, URL = {https://jpm.pm-research.com/content/30/4/150}, eprint = {https://jpm.pm-research.com/content/30/4/150.full.pdf}, journal = {The Journal of Portfolio Management} }