| Item Type |
Journal paper
|
| Abstract |
Maximum drawdown, the largest cumulative loss from peak to trough, is one of the most widely used indicators of risk in the fund management industry, but one of the least developed in the context of measures of risk. We formalize drawdown risk as Conditional Expected Drawdown (CED), which is the tail mean of maximum drawdown distributions. We show that CED is a degree one positive homogenous risk measure, so that it can be linearly attributed to factors; and convex, so that it can be used in quantitative optimization. We empirically explore the differences in risk attributions based on CED, Expected Shortfall (ES) and volatility. An important feature of CED is its sensitivity to serial correlation. In an empirical study that fits AR(1) models to US Equity and US Bonds, we find substantially higher correlation between the autoregressive parameter and CED than with ES or with volatility. |
| Authors |
Mahmoud, Ola & Goldberg, Lisa R. |
| Journal or Publication Title |
Mathematics and Financial Economics |
| Language |
English |
| Subjects |
economics
finance |
| HSG Classification |
contribution to scientific community |
| HSG Profile Area |
SEPS - Quantitative Economic Methods |
| Refereed |
Yes |
| Date |
June 2017 |
| Publisher |
Springer |
| Place of Publication |
Berlin |
| Volume |
11 |
| Number |
3 |
| Page Range |
275-297 |
| ISSN |
1862-9679 |
| ISSN-Digital |
1862-9660 |
| Publisher DOI |
https://doi.org/10.1007/s11579-016-0181-9 |
| Depositing User |
Prof. Dr. Ola Mahmoud
|
| Date Deposited |
19 Sep 2017 10:30 |
| Last Modified |
20 Jul 2022 17:32 |
| URI: |
https://www.alexandria.unisg.ch/publications/251773 |
Drawdown: From Practice to Theory and Back Again
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