The risk models that we currently use are many times rutted and out of date. They have certain limiting, linear interpretations to them. Worse still, market participants mostly falsely predict large market risks, ignoring even these traditional risk models. Instead they focus on specific market drops as their primary risk measure. It's critical to advance our risk learning by going further, and decomposing and analyzing the inter-relationships of how different asset classes behave, through a risky environment. We recently published two risk articles, one with the Society of Actuaries (SOA) and one with the Chartered Financial Analyst Institute (CFA). These mathematics articles (the former topic is on single-asset liquidity risk, the latter topic is on advanced portfolio risk) blend academic research with high-level practitioner experience. Both of these organizations are highly respected, global institutions. The articles were accepted earlier in 2014.
The CFA article is their first and Feature, in their fourth quarter print. Similar to the SOA article, the CFA also has a reference link back to the research earlier published here in this web log. These articles, and others currently being put together, evidence a need for market participants to have more deference to the general way risk interacts with our financial portfolios and other life decisions that we make. The Federal Reserve today announced the tapering completion of its recent asset purchases, and regulators -smarting from various historic market crashes- are looking at ways to limit ravaging spikes in market volatility. But similar to how foreign governments couldn't completely eliminate (through higher taxes and grotesque warning pictures) some smokers from using tobacco products, or how Mayor Bloomberg couldn't completely eliminate (through smaller cups and public campaigns) some New Yorkers from consuming sugary drinks, regulation is only a part-way solution. Ultimately the healthiest choices we need to make in society, only we can make individually for ourself.
What that means in the context of risk is that even if it is not regulated, nor explicitly informed to the public, one needs to use common sense to guide them on what is high risk. And simply take personal responsibility to restrict oneself, as well, on those risks. If one instead weakly zigzags through life, excusing away the power of mathematical models as inconveniently complex, then he or she will always confuse themself on the differences between prudent risk exposure and financial market entertainment. If we saw anything from the brief market fear earlier in October (the nadir we published within a day), it's that the time to worry about your risk isn't once it is underway. President Kennedy expressed similar views in a number of his early 1960s speeches:
"There are risks and costs to a program of action. But they are far less than the long-range risks and costs of comfortable inaction."
It's clear that we are slowly pulling back from the extraordinarily low volatility regime we experienced in the past year. The future will become increasingly less certain, and we should here again reassert our focus on how we appreciate and model investment risk. These research articles are important building blocks, which connect our topic of statistics learnings to actual risk. Enjoy an advanced look and share with your friends (already a thousand LinkedIn likes in its first 24 hours) via these free web links above.
The CFA article is their first and Feature, in their fourth quarter print. Similar to the SOA article, the CFA also has a reference link back to the research earlier published here in this web log. These articles, and others currently being put together, evidence a need for market participants to have more deference to the general way risk interacts with our financial portfolios and other life decisions that we make. The Federal Reserve today announced the tapering completion of its recent asset purchases, and regulators -smarting from various historic market crashes- are looking at ways to limit ravaging spikes in market volatility. But similar to how foreign governments couldn't completely eliminate (through higher taxes and grotesque warning pictures) some smokers from using tobacco products, or how Mayor Bloomberg couldn't completely eliminate (through smaller cups and public campaigns) some New Yorkers from consuming sugary drinks, regulation is only a part-way solution. Ultimately the healthiest choices we need to make in society, only we can make individually for ourself.
What that means in the context of risk is that even if it is not regulated, nor explicitly informed to the public, one needs to use common sense to guide them on what is high risk. And simply take personal responsibility to restrict oneself, as well, on those risks. If one instead weakly zigzags through life, excusing away the power of mathematical models as inconveniently complex, then he or she will always confuse themself on the differences between prudent risk exposure and financial market entertainment. If we saw anything from the brief market fear earlier in October (the nadir we published within a day), it's that the time to worry about your risk isn't once it is underway. President Kennedy expressed similar views in a number of his early 1960s speeches:
"There are risks and costs to a program of action. But they are far less than the long-range risks and costs of comfortable inaction."
It's clear that we are slowly pulling back from the extraordinarily low volatility regime we experienced in the past year. The future will become increasingly less certain, and we should here again reassert our focus on how we appreciate and model investment risk. These research articles are important building blocks, which connect our topic of statistics learnings to actual risk. Enjoy an advanced look and share with your friends (already a thousand LinkedIn likes in its first 24 hours) via these free web links above.
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