April 10, 2012
Credit Suisse's Asset Management division announced the release of a new white paper titled "New Normal Investing: Is the (Fat) Tail Wagging Your Portfolio?". Authored by Yogi Thambiah and Nicolo' Foscari, both from the Investment Strategy Americas CIO Office, the paper addresses how investors can adjust risk frameworks to deal with a "New Normal" environment of increasing volatility and low-yielding assets.
The paper—the latest of several recent publications by the authors on the investing challenges in the new-normal environment—focuses primarily on risk-management techniques designed to better incorporate fat-tail risks and potentially minimize portfolio losses.
The paper's highlights and conclusions include:
- In the new normal, fluctuations in risk appetite will be more frequent and portfolio returns will be increasingly derived from the tails;
- As traditional measures of risk based on mean-variance optimization have failed to fully characterize return behavior, incorporating higher moments (i.e., skew and kurtosis) of a return distribution have become increasingly important; and
- Shifting the risk-management framework to accommodate fat-tail events can minimize potential portfolio drawdowns and help protect assets against extremely negative returns.
The authors conclude with a case study showcasing the proposed techniques in action.
For a copy of "New Normal Investing: Is the (Fat) Tail Wagging Your Portfolio?", please contact
or visit the Asset Management site at
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