LFIS Identifies Common Drivers behind Alt Risk Premia’s Difficult Year
LFIS goes beyond the headlines to investigate the drivers of losses industry-wide in 2018, with interesting findings on factor investing approaches. This paper is the most recent in LFIS’ on-going collaboration with Risk Magazine.
Those who were waiting for the ARP industry to face its first “real” test got their wish: 2018 was a very challenging and revelatory year. In 2018, all the main risks of ARP investing, including overly simple factor construction and inadvertent market exposure, forced selling/deleveraging, recorrelation risk and lack of diversification, materialized in the same 12-month period. Using PCA helps understand the strategies that drove losses industry-wide, while regression analysis allows then to determine the exposure of individual funds to these strategies.
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To access other white paper in the series, click here.
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