Hermes Investment Management case study

How volatility extremes skew returns

Published by : Hermes Investment Management

The turbulence of early 2016 reminds us that volatility follows a broad historical pattern: long periods of relative calm typically alternate with more dramatic episodes. We can track the movement of stars by using a normal distribution based on standard deviations, but asset prices continue to distort the perfect symmetry of the bell curve, resulting in fat-tail events. Being aware of the propensity for tail risk to change unexpectedly as market conditions evolve provides us with a strong foundation for developing more astute ways of managing extreme downside risk, says Eoin Murray, Head of Hermes Investment Office.

Published:08 April 2016

Business Area: Investments

Type: Portable Document Format (.pdf)

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