Online Trading White Papers
Idiosyncratic Risk - an Empirical Analysis, with Implications for the Risk of Relative-Value Trading Strategies
Overview This paper models the idiosyncratic or asset-specific return of an asset as the return on a portfolio that is long in that asset and short in other assets in the same class, thereby removing the common components of returns. This is the type of "hedged" position that is held by relative-value investors. Weekly returns data for seven different asset classes suggest that idiosyncratic risk is: higher at times of large return outcomes for the asset class as a whole; positively auto correlated; and correlated across different asset classes. The implications for risk management are discussed.
| Publisher | International Monetary Fund | File Format | PDF, requires Acrobat Rdr 5 |
|---|---|---|---|
| Date Published | November 1999 | Downloads | 3 |
| Format | White Papers | ||
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