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Computational Economics

, Volume 41, Issue 3, pp 407–424 | Cite as

Portfolio Risk Measures: The Time’s Arrow Matters

  • Alain Ruttiens
Article

Abstract

The traditional ex post risk measure associated to a portfolio, a fund or a market performance, is the standard deviation of a series of past returns, called volatility. We propose an alternative risk measure, that turns out to better quantify the risk actually supported by an investor or asset manager with respect to a portfolio or a fund. This alternative measure is computed from the actual dispersion of successive cumulated returns relative to the corresponding successive cumulated returns produced by an accrued performance of null volatility, which better reflects the dynamics of the risk-return relationship over time. Hence, the proposed name of “accrued returns variability”, for such a risk measure that incorporates the passage of time. Applications are presented, to enlighten the advantage of this risk measure.

Keywords

Market risk measure Variability Volatility 

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Copyright information

© Springer Science+Business Media New York 2012

Authors and Affiliations

  1. 1.NEURON sàrlLuxembourgLuxembourg
  2. 2.ESCP EuropeParisFrance

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