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Article

Active Risk-Based Investing

Emmanuel Jurczenko and Jérôme Teiletche
The Journal of Portfolio Management Winter 2018, 44 (3) 56-65; DOI: https://doi.org/10.3905/jpm.2018.44.3.056
Emmanuel Jurczenko
is associate dean and professor of finance in the Ecole Hôtelière de Lausanne at the University of Applied Sciences Western Switzerland (HES-SO) in Delémont, Switzerland
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Jérôme Teiletche
is managing director and the head of Cross-Asset Solutions at Unigestion in Geneva, Switzerland
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Abstract

Risk-based investing is experiencing growing success among investors, although some critics contend that the implicit “no-views” characteristic of these solutions might trigger other forms of risk, such as valuation risk. In this article, the authors introduce an analytical framework that allows investors to add active views on top of a risk-based solution, bridging the gap between risk-based investing and mean-variance portfolio optimization. Starting from a Black-Litterman approach, the authors derive closed-form expressions for the active risk-based portfolio weights and discuss practical implementation aspects. The framework is illustrated with a multi-asset allocation exercise over the period 1974–2016. Using views generated from macroeconomic regime signals, the active risk-based strategy is shown to outperform empirically both passive risk-based strategies and popular methodologies such as Equal-weight or Maximum Sharpe ratio.

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The Journal of Portfolio Management: 44 (3)
The Journal of Portfolio Management
Vol. 44, Issue 3
Winter 2018
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Active Risk-Based Investing
Emmanuel Jurczenko, Jérôme Teiletche
The Journal of Portfolio Management Jan 2018, 44 (3) 56-65; DOI: 10.3905/jpm.2018.44.3.056

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Active Risk-Based Investing
Emmanuel Jurczenko, Jérôme Teiletche
The Journal of Portfolio Management Jan 2018, 44 (3) 56-65; DOI: 10.3905/jpm.2018.44.3.056
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  • Article
    • Abstract
    • A GENERIC RISK-BASED PORTFOLIO
    • IS RISK-BASED ALLOCATION REALLY WITHOUT VIEWS?
    • INCORPORATING ACTIVE VIEWS
    • EMPIRICAL ILLUSTRATION
    • CONCLUSION
    • ENDNOTES
    • REFERENCES
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