Risk Without Return

Lisa R. Goldberg; Ola Mahmoud

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arXiv · 1307.0114

Risk Without Return

Lisa R. Goldberg·Ola Mahmoud

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Abstract

Risk-only investment strategies have been growing in popularity as traditional in- vestment 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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BibTeX RIS

Lisa R. Goldberg, Ola Mahmoud. 2013-09-02. Risk Without Return. https://arxiv.org/abs/1307.0114

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