Measuring portfolio risk: How size, book-to-market and prior portfolio returns are related to their risk-adjusted performance?
by Sotiria Plastira
International Journal of Computational Economics and Econometrics (IJCEE), Vol. 7, No. 3, 2017

Abstract: This paper provides an extensive review on risk indices, both traditional and more sophisticated, and the resulting evaluation measures focusing on quantifying portfolio risk along with the associated risk-adjusted performance. The implementation of these measures on the high minus low (HML), small minus big (SMB), MOM (momentum), LT-Rev (long-term reversal) and ST-Rev (short-term reversal) empirical factors produce for the first time a ranking of the aforementioned portfolios revealing that the least risky HML and the most risky MOM factor portfolios achieve the best and worst performance, respectively. This analysis goes one step further by implementing the same measures on portfolios formed by a specific characteristic, such as size, book-to-market or MOM, establishing thus a connection between these characteristics and portfolios' embedded risk or performance. Our empirical findings suggest that the traditional and downside performance measures lead to identical rankings, whereas drawdown-based ones influence the rank order among the portfolios of interest.

Online publication date: Mon, 10-Jul-2017

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