Journal of Risk

This issue of The Journal of Risk addresses the econometric challenge of covariance estimation for stable portfolio optimization, and it also looks at topics including assessment of the efficiency of cryptocurrency markets, determining the factors that affect private equity exit strategies, and the linkage between oil prices and interest rates.

In our first paper, “A factor-based risk model for multifactor investment strategies”, Frederic Abergel, Benoit Bellone and Francois Soupé use a dual approach based on both time series and cross sections to build a cross-sectional risk model involving style and macro factors. This process results in a covariance structure that captures significant stock characteristics as well as setting the stage for robust portfolio selection.

In “Market efficiency and volatility within and across cryptocurrency benchmark indexes”, the issue’s second paper, Dimitrios Koutsoupakis presents an extensive analysis addressing the efficiency of cryptocurrency markets. The author proposes a scheme for the market segmentation of cryptocurrencies, thus ultimately helping with the evaluation of market efficiency and the performance evaluation of cryptobased portfolios against benchmark indexes. The sample used in this study supports the striking finding that centralized stable tokens (stablecoins) are more vulnerable to market inefficiencies than algorithmic tokens, which are also anchored to traditional currencies but in a more decentralized fashion.

Next, Christian Tausch, Axel Buchner and Georg Schlüchtermann focus on risk perception in private equity in “Modeling the exit cash flows of private equity fund investments”, the third paper in this issue. They use an exit timing model that is particularly suited to accounting for the large number of failures in this industry; their model also benefits from the granularity of the data available to the authors. Specifically, they employ a joint copula model that conditions the exit multiple for a fund on its timing and that also incorporates covariates that are more meaningful at a granular level than at the fund level.

Our fourth and final paper, “High-frequency movements of the term structure of US interest rates: the role of oil market uncertainty”, is by Elie Bouri, Rangan Gupta, Clement Kweku Kyei and Sowmya Subramaniam. They use five-minute intraday oil returns and US interest rate data to ascertain that there is no linear Granger causality of the former on the level, slope and curvature of the term structure of interest rates. However, they do find evidence of nonlinearity and structural break effects by using a nonparametric approach.

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