RT Journal Article
SR Electronic
T1 Practical Applications of Improving Risk Forecasts Through Cross-Sectional Observations
JF Practical Applications
FD Institutional Investor Journals
SP 1
OP 4
DO 10.3905/pa.2015.3.2.122
VO 3
IS 2
A1 Jose Menchero
A1 Andrei Morozov
A1 Gauri Goyal
YR 2015
UL https://pm-research.com/content/3/2/1.3.abstract
AB Improving Risk Forecasts Through Cross-Sectional Observations Jose Menchero Andrei Morozov Many traditional approaches to forecasting volatility have shortcomings related to sampling error and other limitations. Jose Menchero , CEO of Menchero Portfolio Analytics Consulting , and Andrei Morozov, Executive Director at MSCI in Berkeley, California, offer a new approach that uses cross-sectional observations to produce more timely and accurate forecasts. This report discusses statistical measures for risk forecasting.“Volatility forecasting is a challenging task,” Menchero says. “For instance, risk models tend to under-forecast volatility during times of financial crisis, while they over-forecast volatility after the crisis subsides. Our cross-sectional technique mitigates these biases by assigning more weight to recent observations without incurring a high penalty in sampling error.”TOPICS: Analysis of individual factors/risk premia, portfolio management/multi-asset allocation