Take a closer look at innovations and shifts in investment management and risk assessment.

  • Constraining Optimized Portfolios: Handle with Care…

    Our new series of papers extends our earlier work looking at the impact of constraints on optimized factor portfolios. The current analysis examines global developed-market portfolios constructed to tilt on Low VolatilityValue, and Momentum.

    Melissa R. Brown, CFA Research Paper No. 123-125
    research paper thumbnail
  • 10 Years After: A Changed World for Financials?

    On the occasion of the 10th anniversary of the failure of Lehman Brothers, we dug into the risk and return characteristics of US Financial stocks to see what has changed — and what has not.

    Melissa R. Brown, CFA Research Paper No. 122
    research paper thumbnail
  • In Trade War, the US Skates While China Suffers—So Far

    The short-term effects of the escalating trade war between the US and China have been rather lopsided thus far—quite positive for the US and negative overall for China. Given the differences in the two countries’ sensitivities to non-energy commodities, which are bearing the brunt of the turmoil, the results are not that surprising.

    Diana R. Rudean, PhD Research Paper No. 121
    research paper thumbnail
  • ESG’s Evolving Performance: First, Do No Harm

    We evaluate the investment performance of ESG, paying particular attention to recent performance and highlighting the difference between ESG scores that overlap with traditional risk model factors and those that don’t. Our analysis indicates that, in general, increasing exposure to ESG rarely underperforms the market, and often outperforms the market, especially during the last few years.

    Anthony A. Renshaw, Ph.D. Research Paper No. 120
    research paper thumbnail
  • Q2 2018 Insights

    Risk Retreated in Q2 But...
    Active Managers Need to Look Under the Hood

    Markets worldwide saw large swings in Q2 2018, and while US stocks were up for the quarter, many world markets were barely in the black. Volatility remained elevated from historical lows, but has eased globally, driven by the fall in market risk. Other components of risk, however, rose in Q2 which may have an important impact on active managers.

    Axioma Applied Research Team Research Paper No. 119
    research paper thumbnail
  • What’s in a Name? Part 2: Stress-Testing Smart Beta ETFs

    In this paper, we show results of stress tests on a number of different Smart Beta ETFs. As we noted in our first paper on this topic, even portfolios with similar investment philosophies (and seemingly identical names) can have quite different exposures. We look at reactions to various types of stresses and show once again how results can differ substantially from one fund to the next. We also show how stress-test results can vary widely over time.

    Melissa R. Brown, CFA and Sebastian Ceria, PhD Research Paper No. 118
    research paper thumbnail
  • A Tactical Asset Allocation Workflow

    Long-term investors often passively track a strategic asset allocation benchmark whose weights across the various asset classes remains constant over a multi-year horizon (usually 10, 15 years, or longer). Specialist teams, internal or external, may be setup to add an active overlay portfolio in the form of a tactical asset allocation which deviates from the strategic benchmark over shorter time horizons. These programs are used to either de-risk the strategic portfolio in times of market stress, or to add alpha by aligning the portfolio with the economic cycle over shorter time periods (i.e. usually three to five years).

    Olivier d'Assier Research Paper No. 117
    research paper thumbnail
  • Reverse Stress Testing Challenges: Toward a Systematic Framework

    Regulators have strongly endorsed reverse stress testing programs within financial institutions since reverse stress tests can explicitly examine the solvency of a firm. Reverse stress tests are designed to identify economic scenarios that will threaten a firm's survival and potentially help managers hedge against hidden scenarios. These stress tests are attractive from a risk perspective, but implementing a reverse stress testing program that is independent of a manager’s bias is difficult. In this paper, we outline a systematic, quantitative framework to design and construct reverse stress tests. This paper is our third installment on stress testing.

    Iulian Cotoi and Robert Stamicar Research Paper No. 116
    research paper thumbnail
  • The Correlation See-Saw

    The first five months of 2018 were characterized by dramatic shifts in multi-asset class relationships, with an unusual back and forth of asset prices and correlations, as themes dominating the investment landscape alternated. In this paper, Christoph Schon analyzes how the different correlation regimes present during this time affected the overall volatility and risk decomposition of Axioma’s global multi-asset class model portfolio.

    Christoph V. Schon, CFA, CIPM Research Paper No. 115
    research paper thumbnail
  • When Size Does Matter

    In this paper, Olivier d’Assier evaluates the use of a custom small-cap risk model built for this segment of the Japanese market using the Risk Model Machine (RMM) module in Axioma Portfolio Analytics. Do risk and performance attributions differ from the standard Japan risk model built on the full universe of stocks? What are, if any, the advantages delivered by the custom model for strategies focused on this market segment? Given these results, should small-cap managers include a custom risk model in their investment process?

    Olivier d'Assier Research Paper No. 114
    research paper thumbnail