Research and publications

Tail Risk Of Smart Beta Portfolios: An Extreme Value Theory Approach

This paper studies the in-sample extreme risk of smart beta portfolios using the GARCH-EVT model. To validate the in-sample approach, we back-tested the methodology on smart beta indices constructe ...

Author(s):

Lixia Loh, Stoyan Stoyanov

Summary:

This paper studies the in-sample extreme risk of smart beta portfolios using the GARCH-EVT model. To validate the in-sample approach, we back-tested the methodology on smart beta indices constructed from long-term US data spanning 40 years and found that the methodology is robust and reliable. The VaR- and CVaR-based tests for the case of 1% tail probability indicated that, with a couple of exceptions, the model is statistically acceptable for all portfolios for both the left and the right tail.

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Type :	EDHEC Publication
Date :	07/07/2014
Keywords :	Indexes & Benchmarking

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