The Long View of Financial Risk, August 2009

13 Pages Posted: 20 Nov 2009

See all articles by Lisa R. Goldberg

Lisa R. Goldberg

University of California, Berkeley; Aperio Group

Michael Y. Hayes

MSCI Inc.

Date Written: August 18, 2009

Abstract

An extended history of market returns reveals aspects of financial risk that are not evident over short timescales. The most enduring risk measure is variance, which quantifies short-term regularities in return dispersion. An alternative measure, shortfall, quantifies the risk of extreme market moves, and calls for a deep history to inform its forecasts. Both variance and shortfall are convex, meaning that they tend to promote diversification and can be used in optimization. By offering a long-view counterpart to variance, shortfall can significantly broaden an investor's risk perspective.

Keywords: long view financial risk, market returns, risk measure variance, alternative, shortfall, extreme moves, convex

Suggested Citation

Goldberg, Lisa R. and Hayes, Michael Y., The Long View of Financial Risk, August 2009 (August 18, 2009). MSCI Barra Research Paper No. 2009-32, Available at SSRN: https://ssrn.com/abstract=1509588 or http://dx.doi.org/10.2139/ssrn.1509588

Lisa R. Goldberg (Contact Author)

University of California, Berkeley ( email )

Department of Statistics
367 Evans Hall
Berkeley, CA 94720-3860
United States

Aperio Group ( email )

3 Harbor Drive
Suite 315
Sausalito, CA 94965
United States

Michael Y. Hayes

MSCI Inc. ( email )

2100 Milvia St.
Berkeley, CA 94704
United States

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
279
Abstract Views
2,117
Rank
199,434
PlumX Metrics