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Risk without return


Goldberg, Lisa R.; Mahmoud, Ola (2013). Risk without return. The Journal of Investment Strategies, 2(2):111-120.

Abstract

Risk-only investment strategies have been growing in popularity as traditional investment strategies have fallen short of return targets over the last decade. However, risk-based investors should be aware of four things. First, theoretical considerations and empirical studies show that apparently dictinct risk-based investment strategies are manifestations of a single effect. Second, turnover and associated transaction costs can be a substantial drag on return. Third, capital diversification benefits may be reduced. Fourth, there is an apparent connection between performance and risk diversification. To analyze risk diversification benefits in a consistent way, we introduce the Risk Diversification Index (RDI) which measures risk concentrations and complements the Herfindahl-Herschman Index (HHI) for capital concentrations.

Abstract

Risk-only investment strategies have been growing in popularity as traditional investment strategies have fallen short of return targets over the last decade. However, risk-based investors should be aware of four things. First, theoretical considerations and empirical studies show that apparently dictinct risk-based investment strategies are manifestations of a single effect. Second, turnover and associated transaction costs can be a substantial drag on return. Third, capital diversification benefits may be reduced. Fourth, there is an apparent connection between performance and risk diversification. To analyze risk diversification benefits in a consistent way, we introduce the Risk Diversification Index (RDI) which measures risk concentrations and complements the Herfindahl-Herschman Index (HHI) for capital concentrations.

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Additional indexing

Item Type:Journal Article, refereed, original work
Communities & Collections:03 Faculty of Economics > Department of Banking and Finance
Dewey Decimal Classification:330 Economics
Language:English
Date:2013
Deposited On:22 Feb 2019 13:26
Last Modified:26 Jan 2022 20:16
Publisher:Incisive Media Ltd.
ISSN:2047-1238
OA Status:Green
Publisher DOI:https://doi.org/10.21314/JOIS.2013.018
Other Identification Number:merlin-id:17367

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