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Non-normality of Market Returns
Company: JP Morgan
Company Url: Click here to open
Year Of Publication: 2009
Month Of Publication: May
Pages: 40
Download Count: 13
View Count: 2314
Comment Num: 0
Language: English
Who Can Read: Free
Date: 5-2-2010
Publisher: Administrator
The turmoil of 2007/2008 is just one among many such
financial crises over the past 30 years—rare and unpredictable
events that can, and should, challenge conventional ideas about
portfolio construction.
Of course, we can never know in advance when such events will
occur and how bad they will be. We do know, however, that we
empirically observe such events with much greater frequency
than current models allow for. So, the proper line of questioning
for investors becomes: Can current risk management frameworks
be modified to better capture the long-term, downside
risk associated with these rare but dangerous anomalies—i.e.
frameworks that take into account more than just one-standarddeviation
event, and better reflect their observed frequency?
The goal of this paper is to present such a revised framework.
In broad scope, we believe that two specific weaknesses in conventional
risk assessment may be contributing to a quantifiable
underestimation of portfolio risk:
? Fr
Sheikh, Abdullah Z. Sign in to follow this author
Qiao, Hongtao Sign in to follow this author
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