We propose and implement a procedure to optimally hedge climate change risk. First, we construct climate risk indices through textual analysis of newspapers. Second, we present a new approach to compute factor-mimicking portfolios to build climate risk hedge portfolios. The new mimicking portfolio app...
mimicking portfoliosportfolio optimizationmacro risk managementmachine learningThe estimation of risk factors and their replication through mimicking portfolios are of critical importance for academics and practitioners in finance. We propdoi:10.2139/ssrn.3363598Jurczenko, Emmanuel...
As a result portfolios containing stocks with low loading on the background factor receive negative betas against the corresponding mimicking portfolio. Thus, such portfolios appear as hedges against the background risk and may in tests of asset pricing models receive significant positive intercepts. ...
The quality of each PA may be evaluated to identify advantageous PAs for portfolio managers to use. The machine enables portfolio managers to obtain actionable information concerning the sources of investment returns.Dieter VandenbusscheRobert A. Stubbs...
factor mimickingportfolio constructionAugmented Black-Litterman (ABL)factor tiltFama-Frenchfactor rankingfactor risk modeloptimisationOLSGLSWhen investment or hedging views are generated on a factor which is not directly investible, creating a quality factor proxy or mimicking portfolio becomes a ba...
portfolio constructionBayes' RuleAugmented Black-Litterman (ABLview blending and shrinkagesemi-strong market efficiencyFama-Frenchfactor rankingfactor risk modeloptimisationrobustnessYou have some factor, strategy, and/or stock-specific alpha ideas. Without an optimiser, some straightforward linear algebra ...