Risk parity: True versus naive approach

This paper studies the performance of two different Risk Parity strategies, one from Maillard (2008) and a “naïve” that was already used by market practitioners, against traditional strategies. The tests will compare different regions (US, UK, Germany and Japan) since 1991 to 2013, and will use different ways of volatility. The main findings are that Risk Parity outperforms any traditional strategy, and the “true” (by Maillard) has considerable better results than the “naïve” when using historical volatility, while using EWMA there are significant differences.

Introducing spin-off stocks into the NSP’s risk parity strategy

Field lab: Nova Student Portfolio

Introducing risk parity on momentum and carry portfolios

The momentum and carry anomalies have been extensively documented in the literature. However, there are still many issues relating to the risks associated to them that are left unexplained. One is the fact that an investor holds for too long the most volatile assets, both under momentum and carry strategies. Therefore, they present a level of risk and a probability of extreme events to happen inconsistent. This work project hypothesizes and proves the introduction of risk parity rules on the weights of the portfolios do increase risk rewarding of carry strategies. However, it fails under momentum strategies.

Risk Parity: A Modern Tool for Diversification

The purpose of this study is to examine how well risk parity works in terms of risk, return and diversification relative to more traditional minimum variance, 1/N and 60/40 portfolios. Risk parity portfolios were constituted of five risk sources; three common asset classes and two alternative beta investment strategies. The three common asset classes were equities, bonds and commodities, and the alternative beta investment strategies were carry trade and trend following. Risk parity portfolios were constructed using five different risk measures of which four were tail risk measures. The risk measures were standard deviation, Value-at-Risk, Expected Shortfall, modified Value-at-Risk and modified Expected Shortfall. We studied also how sensitive risk parity is to the choice of risk measure. The hypothesis is that risk parity portfolios provide better return with the same amount of risk and are better diversified than the benchmark portfolios. We used two data sets, monthly and weekly data. The monthly data was from the years 1989-2011 and the weekly data was from the years 2000-2011. Empirical studies showed that risk parity portfolios provide better diversification since the diversification is made at the risk level. Risk based portfolios provided superior return compared to the asset based portfolios. Using tail risk measures in risk parity portfolios do not necessarily provide better hedge from tail events than standard deviation.

International portfolio diversification: evidence from emerging markets

Taking into account previous research we could assume to be beneficial to diversify investments in emerging economies. We investigate in the paper International Portfolio Diversification: evidence from Emerging Markets if it still holds true, given the assumption of larger world markets integration. Our results suggest a wide spread positive time-varying correlations of emerging and developed markets. However, pair-wise cross-country correlations gave evidence that emerging markets have low integration with developed markets. Consequently, we evaluate out-of-sample performance of a portfolio with emerging equity countries, confirming the initial statement that it has a better a risk-adjusted performance over a purely developed markets portfolio.

Portfólios ponderados pelo risco : uma abordagem para a alocação de carteiras

Esse estudo busca analisar o desempenho de um portfólio de investimento constituído através da contribuição equânime do risco de seus ativos para o risco total do portfólio, ou seja, a chamada estratégia de risk parity, utilizando uma amostra composta de dados diários de cotações de fechamento de 27 ações pertencentes ao mercado brasileiro de ações entre janeiro de 2004 e dezembro de 2014. O estudo compara tal portfólio com outros três portfólios constituídos através de abordagens tradicionais: o portfólio baseado na estratégia por média-variância, o portfólio baseado na estratégia por mínima variância e o portfólio igualmente ponderado, também conhecido como portfólio ingênuo (naive). Ao mesmo tempo, o estudo analisa o desempenho do portfólio comparado a dois indicadores importantes do mercado de capitais brasileiro: o IBOVESPA e o CDI. Foram construídas séries temporais com rebalanceamento trimestral dos portfólios para o desenvolvimento do estudo, como efetuado em Maillard et al. (2010). Os resultados demonstram que o portfólio constituído através da contribuição equânime ao risco não apresentou desempenho superior quando comparado aos portfólios por média-variância e por mínima variância, em termos de retorno e risco. Por outro lado, quando comparado ao portfólio ingênuo, ao IBOVESPA e ao CDI, o desempenho obtido foi superior, tendo também apresentado resultados similares aos exibidos em Maillard et al. (2010). O estudo conclui que a construção de carteiras por risk parity é uma alternativa viável para a composição de carteiras que buscam estabilidade na alocação de risco e nos pesos dos ativos no longo prazo, diante de diferentes cenários macroeconômicos.

Hormonal factors and risk of aneurysmal subarachnoid hemorrhage - An international population-based, case-control study

Background and Purpose-Subarachnoid hemorrhage (SAH) is more common in women than in men, but the role of hormonal factors in its etiology remains uncertain. The aim of this study was to examine the relationship between hormonal factors and risk of SAH in women. Methods-This was a prospective, multicenter, population-based, case-control study performed in 4 major urban centers in Australia and New Zealand. Two hundred sixty-eight female cases of first-ever aneurysmal SAH occurred during 1995-1998. Controls were 286 frequency-matched women from the general population of each center. Outcome measures included risk of SAH associated with use of oral contraceptive pills (OCPs), hormone replacement therapy (HRT), and various endogenous hormonal factors including menstrual patterns, parity, age at birth of first child, and breast-feeding practices. Results-Cases and controls did not differ with regard to menstrual and reproductive history except in age at bir th of first child, where older age was associated with reduced risk of SAH (odds ratio [OR], 0.63; 95% CI, 0.43, 0.91). Relative to never use of HRT, the adjusted OR for over use of HRT was 0.64 (95% CI, 0.41, 0.98), which did not alter significantly after further adjustment for possible confounding factors. Borderline evidence of an inverse association was detected for past use of HRT (adjusted OR, 0.59; 95% CI, 0.30, 1.13) and current use of HRT (adjusted OR, 0.67; 95% CI, 0.40, 1.13), but there was no evidence of an association for use of OCPs (adjusted OR, 0.97; 95% CI, 0.58, 1.60). Conclusions-The risks of SAH are lower in women whose first pregnancy is at an older age and women who have ever used HRT but not OCPs. The findings suggest an independent etiologic role for hormonal factors in the pathogenesis of aneurysmal SAH and provide support for a protective role fur HRT on risk of SAH in postmenopausal women.

Tubal sterilisation, hysterectomy and decreased risk of ovarian cancer

We have examined the effect of tubal sterilisation and hysterectomy on risk of ovarian cancer in a large case-control study in eastern Australia involving 824 women aged 18-79 years, diagnosed with epithelial ovarian cancer between 1990 and 1993, and 855 controls randomly selected from the electoral roll. Relative risks for ovarian cancer were estimated using multiple categorical regression to adjust for age, parity, oral contraceptive use and other risk factors. Tubal sterilisation was associated with a 39% reduction in risk of ovarian cancer (RR 0.61, 95% Cl 0.46-0.85) and hysterectomy with a 36% reduction (RR 0.64, 95% Cl 0.48-0.85). Risk remained low 25 years after surgery and was reduced irrespective of sterilisation technique, and estimates were similar among various types of epithelial ovarian cancer. The greatest reduction (74%) was observed among women with primary peritoneal tumours. Pelvic infection and use of vaginal sprays or contraceptive foams were not related to ovarian cancer, while use of talc in the perineal region slightly but significantly increased risk among women with patent fallopian tubes. Reportedly heavy or painful menses, perhaps associated with retrograde flow, were associated with ovarian cancer, and reduction in risk of disease after hysterectomy was greatest among women who had heavy periods. Our findings support the theory that contaminants from the vagina, such as talc, and from the uterus, such as endometrium, gain access to the peritoneal cavity through patent fallopian tubes and may enhance the malignant transformation of ovarian surface epithelium. Surgical tubal occlusion may reduce the risk of ovarian cancer by preventing the access of such agents. (C) 1997 Wiley-Liss, Inc.

Cigarette smoking and risk of epithelial ovarian cancer (Australia)

Objectives: We studied the association between cigarette smoking and ovarian cancer in a population-based case-control study. Methods: A total of 794 women with histologically confirmed epithelial ovarian cancer who were aged 18-79 years and resident in one of three Australian states were interviewed, together with 855 controls aged 18-79 years selected at random from the electoral roll from the same states. Information was obtained about cigarette smoking and other factors including age, parity, oral contraceptive use, and reproductive factors. We estimated the relative risk of ovarian cancer associated with cigarette smoking, accounting for histologic type, using multivariable logistic regression to adjust for confounding factors. Results: Women who had ever smoked cigarettes were more likely to develop ovarian cancer than women who had never smoked (adjusted odds ratio (OR) = 1.5; 95% confidence interval (CI) = 1.2-1.9). Risk was greater for ovarian cancers of borderline malignancy (OR = 2.4; 95% CI = 1.4-4.1) than for invasive tumors (OR = 1.7; 95% CI = 1.2-2.4) and the histologic subtype most strongly associated overall was the mucinous subtype among both current smokers (OR = 3.2; 95% CI = 1.8-5.7) and past smokers (OR = 2.3; 95% CI = 1.3-3.9). Conclusions: These data extend recent findings and suggest that cigarette smoking is a risk factor for ovarian cancer, especially mucinous and borderline mucinous types. From a public health viewpoint, this is one of the few reports of a potentially avoidable risk factor for ovarian cancer.

Reproduction-related risk factors for mucinous and nonmucinous epithelial ovarian cancer

The proposition that mucinous ovarian cancer has an etiology distinct from that of other histologic types has been evaluated using data from a population-based case-control study of epithelial ovarian cancer conducted in 1990-1993 among Australian women aged 18-79 years. The protective effects of parity and oral contraceptive use were greater in nonmucinous than in mucinous ovarian tumors. However, these differences appeared to be driven largely by the effect of ovulatory life, which was positively associated with nonmucinous tumors only. An association with family history of breast and/or ovarian cancer also appeared to be restricted to nonmucinous cancers. These results lend support to the hypothesis that mucinous and nonmucinous ovarian tumors develop via different causal mechanisms.

Covered interest parity

A Work Project, presented as part of the requirements for the Award of a Masters Degree in Finance from the NOVA – School of Business and Economics

Covered interest parity

This report aims to study the evolution of the Covered Interest Rate Parity (CIP) over the course of the last years. With the 2007 financial crisis many fundamental relationships changed, and CIP was not an exception. To infer whether or not this was an isolate event, the behaviour of the CIP during the European Sovereign debt crisis was studied. Currency pairs such as EURUSD showed significant CIP deviations during both crises. This work shows that currently, spreads are mostly explained by counterparty risk and market sentiment factors, which are extremely different factors from the ones explaining the spread during 2003-06. Key

Risk Prediction of Cardiovascular Complications in Pregnant Women With Heart Disease

Abstract Background: Heart disease in pregnancy is the leading cause of non- obstetric maternal death. Few Brazilian studies have assessed the impact of heart disease during pregnancy. Objective: To determine the risk factors associated with cardiovascular and neonatal complications. Methods: We evaluated 132 pregnant women with heart disease at a High-Risk Pregnancy outpatient clinic, from January 2005 to July 2010. Variables that could influence the maternal-fetal outcome were selected: age, parity, smoking, etiology and severity of the disease, previous cardiac complications, cyanosis, New York Heart Association (NYHA) functional class > II, left ventricular dysfunction/obstruction, arrhythmia, drug treatment change, time of prenatal care beginning and number of prenatal visits. The maternal-fetal risk index, Cardiac Disease in Pregnancy (CARPREG), was retrospectively calculated at the beginning of prenatal care, and patients were stratified in its three risk categories. Results: Rheumatic heart disease was the most prevalent (62.12%). The most frequent complications were heart failure (11.36%) and arrhythmias (6.82%). Factors associated with cardiovascular complications on multivariate analysis were: drug treatment change (p = 0.009), previous cardiac complications (p = 0.013) and NYHA class III on the first prenatal visit (p = 0.041). The cardiovascular complication rates were 15.22% in CARPREG 0, 16.42% in CARPREG 1, and 42.11% in CARPREG > 1, differing from those estimated by the original index: 5%, 27% and 75%, respectively. This sample had 26.36% of prematurity. Conclusion: The cardiovascular complication risk factors in this population were drug treatment change, previous cardiac complications and NYHA class III at the beginning of prenatal care. The CARPREG index used in this sample composed mainly of patients with rheumatic heart disease overestimated the number of events in pregnant women classified as CARPREG 1 and > 1, and underestimated it in low-risk patients (CARPREG 0).