Managing Risks Beyond Volatility

摘要

In, Managing Risks Beyond Volatility from the Fall 2017 issue of The Journal of Index Investing, authors Mehdi Alighanbari, Stuart Doole, and Dimitris Melas, all of MSCI, discuss how well investment strategies that minimize price-volatility risk address other risks not directly targeted by a traditional minimum-volatility strategy, such as concentration, sustainability, and crowding. By applying factor models, the authors examine whether minimum-volatility strategies guard against these other risks, or if they do not, how such strategies could be modified to do so without compromising their fundamental mission of minimizing overall portfolio volatility. Minimum-volatility strategies, by selecting for low-volatility and weakly correlated assets, innately promote diversification. The authors demonstrate that adding a diversification constraint to portfolio management may in fact be counterproductive to the purpose of a minimum-volatility investment approach. In contrast, mitigation of crowding risk, and to some extent sustainability risk, can be enhanced through portfolio-construction constraints, without compromising a minimum-volatility strategy's fundamental objective. Therefore, a minimum-volatility strategy properly incorporating some methodological constraints into portfolio design can effectively mitigate some risks other than volatility, especially from overvalued assets that may increasingly take over a minimum-volatility portfolio's composition over time as such a strategy is followed.