Browsing by Subject "Risk diversification"

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    ItemOpen Access
    Analysis of cross-correlations between financial markets after the 2008 crisis
    (Elsevier BV, 2013) Sensoy, A.; Yuksel, S.; Erturk, M.
    We analyze the cross-correlation matrix C of the index returns of the main financial markets after the 2008 crisis using methods of random matrix theory. We test the eigenvalues of C for universal properties of random matrices and find that the majority of the cross-correlation coefficients arise from randomness. We show that the eigenvector of the largest deviating eigenvalue of C represents a global market itself. We reveal that high volatility of financial markets is observed at the same times with high correlations between them which lowers the risk diversification potential even if one constructs a widely internationally diversified portfolio of stocks. We identify and compare the connection and cluster structure of markets before and after the crisis using minimal spanning and ultrametric hierarchical trees. We find that after the crisis, the co-movement degree of the markets increases. We also highlight the key financial markets of pre and post crisis using main centrality measures and analyze the changes. We repeat the study using rank correlation and compare the differences. Further implications are discussed.
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    ItemOpen Access
    MAD risk parity portfolios
    (Springer New York LLC, 2024-01-16) Ararat, Çağın; Cesarone, F.; Pınar, Mustafa Çelebi; Ricci, J. M.
    In this paper, we investigate the features and the performance of the risk parity (RP) portfoliosusing the mean absolute deviation (MAD) as a risk measure. The RP model is a recent strategyfor asset allocation that aims at equally sharing the global portfolio risk among all the assetsof an investment universe. We discuss here some existing and new results about the propertiesof MAD that are useful for the RP approach. We propose several formulations for finding MAD-RP portfolios computationally, and compare them in terms of accuracy and efficiency. Furthermore, we provide extensive empirical analysis based on three real-world datasets, showing that the performances of the RP approaches generally tend to place both in termsof risk and profitability between those obtained from the minimum risk and the Equally Weighted strategies.