4 Moment CAPM

The 4-Moment Capital Asset Pricing Model is based on two academic papers (Jurcenzko and Maillet, The Four Moment CAPM: Some Basic Results , working paper, 2002, and Hwang and Satchell, Modeling Emerging Market Risk Premia Using Higher Moments , working paper, 1999). When financial assets are normally distributed, the historical asset return, the asset standard…

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Fund of Funds

Investing in funds requires qualitative and quantitative analysis. The investor should construct a portfolio combining different strategies and the latest quantitative techniques. AlternativeSoft provides a software platform to construct optimal portfolios with hedge funds, UCITS III, ETF, mutual funds and fund of hedge funds. The software platform is dedicated to portfolio managers, advisors, banks and…

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Skewness

Skewness measures the distribution asymmetry. A risk-averse investor does not like negative skewness. A distribution with positive skewness has more returns far away to the right of its mean return, as shown below.   Kurtosis measures the fat-tail degree of a distribution. A risk-averse investor prefers a distribution with low kurtosis (i.e. returns not far…

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Regression

The beta of the CAPM measures the linear market risk. The first to assign that the beta was not linear were G.Pettengill, S.Sundaram and I.Mathur, “The Conditional Relation Between Beta and Returns”, Journal of Financial and Quantitative Analysis , 1995. They showed that the beta of a stock is different depending if the market is…

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Black-Litterman

The Black-Litterman model was published in the Financial Analyst’s journal in 1992. It provides an estimate of future expected returns by combining equilibrium returns with an investor’s views. The resulting new vector of returns leads to potentially well diversified, intuitive, and stable portfolios. Implied returns are computed by using the following equation (reverse optimization):with risk…

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