We evaluate the impact of extreme market shifts on equity portfolios and study the difference in negative and positive reactions to market jumps with implications for portfolio risk management. Employing high-frequency data for the constituents of the S&P500 index over the period 2 January 2003 to 30 December 2017, we investigate to what extent the portfolio exposure to the downside and upside jumps can be mitigated. We contrast the risk exposure of individual stocks with those of the portfolios as the number of holdings increases. Varying the jump identification threshold, we show that the number of holdings required to stabilise portfolios’ sensitivities to negative jumps is higher than when positive jumps are considered and that the asymmetry is more prominent for more extreme events. Ignoring this asymmetry results in under-diversification of portfolios and increases exposure to sudden extreme negative market shifts.

(2019). Asymmetric Jump Beta Estimation with Implications for Portfolio Risk Management [journal article - articolo]. In INTERNATIONAL REVIEW OF ECONOMICS & FINANCE. Retrieved from http://hdl.handle.net/10446/152812

Asymmetric Jump Beta Estimation with Implications for Portfolio Risk Management

Urga, Giovanni;
2019-01-01

Abstract

We evaluate the impact of extreme market shifts on equity portfolios and study the difference in negative and positive reactions to market jumps with implications for portfolio risk management. Employing high-frequency data for the constituents of the S&P500 index over the period 2 January 2003 to 30 December 2017, we investigate to what extent the portfolio exposure to the downside and upside jumps can be mitigated. We contrast the risk exposure of individual stocks with those of the portfolios as the number of holdings increases. Varying the jump identification threshold, we show that the number of holdings required to stabilise portfolios’ sensitivities to negative jumps is higher than when positive jumps are considered and that the asymmetry is more prominent for more extreme events. Ignoring this asymmetry results in under-diversification of portfolios and increases exposure to sudden extreme negative market shifts.
articolo
2019
Alexeev, Vitali; Urga, Giovanni; Yao, Wenying
(2019). Asymmetric Jump Beta Estimation with Implications for Portfolio Risk Management [journal article - articolo]. In INTERNATIONAL REVIEW OF ECONOMICS & FINANCE. Retrieved from http://hdl.handle.net/10446/152812
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/10446/152812
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