what volatility tells us about diversification and risk management

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1、CHAPTER11WHATVOLATILITYTELLSUSABOUTDIVERSIFICATIONANDRISKMANAGEMENT∗MaxDarnellIntheaftermathofthefinancialcrisisthatbeganinlate2007,manyhavewon-deredwhynoneofthesophisticatedriskmodelspredictedthecrisis.Butitmaybethatinvestmentmanagersareexpectingtoomuchfromriskmodels.Riskmodelsarehelp

2、fulinjudgingriskexposuresundertypicalsituations.Butnosubstituteforinvestmentjudgmentexistswhenitcomestoanticipatinghowportfolioswillrespondtotailevents.Iwanttoaddressfourtimely,relevantquestionsinthispresentation.First,diddiversifi-cationfail?Second,didriskmodelsfail?Alothasbeensaidabo

3、utriskmodelsandtheirallegedfailuretopredicttherisksthathaveoccurred.Thethirdquestionis,Wasthemag-nitudeoftheriskreallyunprecedentedandshouldithavebeensuchasurprise?Ortowhatdegreeshouldtheriskshavebeenexpectedinmagnitudeifnotintiming?Predictingriskisverydifficult,butunderstandinghowitbe

4、haveswhenitdoesappearissomethingthatwecandiscuss.Andfourth,wereinvestorsoverlyexposedtotailrisk?Thisquestionisveryimportantnowbecausemanyexpectmuchriskwillremaininthemarketsforsometimetocome.∗ReprintedfromCFAInstituteConferenceProceedingsQuarterly(September2009):57–66.Thispre-sentatio

5、ncomesfromtheAssetandRiskAllocation2009conferenceheldinPhiladelphiaon5–6March2009.163CH011.indd1638/28/108:23:02PM164PartII:MeasuringRiskDIDDIVERSIFICATIONFAIL?Fromthestandpointofthebetaorassetallocationlevel,diversificationdidnotfail.Tobetteranswerthequestion,Iwanttodiscusswhatismeant

6、bybeta.Betaisexposuretonondiversifi-ableorsystematicrisk,anditneedstobebrokenintothosetwocomponents:theidiosyncraticcomponentthatisdiversifiableandthesystematiccomponentthatisnot.Themostimportantpointisthefactthatinvestorsexpecttobecompensatedfornondiversifiableriskwhereastheydonotexpect

7、tobecompensatedfordiversifiablerisk.Manypeopletalkaboutassetclassbetas,hedgefundbetas,andalternativebetas,butexposuretoassetclassesisnotthesameasexposuretobeta.Thinkingintermsof“assetclassbetas”reallymisseswhatbetaismeanttoreferto.Ifaninvestorcombinesanassetclasswithanotherassetclass,t

8、heres