Scientific Beta

IPE Special Supplement: EDHEC-Risk Institute Research Insights (Autumn 2012): "Drawing on results in a recently published research article, this article discusses the issues with relative risk of alternative weighting schemes and potential ways to address them through applying basic risk management principles (diversification and hedging) to design portfolios of alternative weighted strategies."

IPE/EDHEC-Risk Institute Research Insights Autumn 2012

"(...) A number of quantitative weighting schemes have been shown to produce robust outperformance with respect to standard cap-weighted equity indices over long time periods. Over periods ranging from a few months to a few years, however, such alternative weighting schemes can generate substantial downside risk relative to cap-weighted indices, which would be a source of concern for most investment managers or chief investment officers. Drawing on results in a recently published research article, this article discusses the issues with relative risk of alternative weighting schemes and potential ways to address them through applying basic risk management principles (diversification and hedging) to design portfolios of alternative weighted strategies. (...)"