RT Journal Article
SR Electronic
T1 Autocorrelation Effects on CTA and Equity<br/>Risk Measurement
JF The Journal of Alternative Investments
FD Institutional Investor Journals
SP 19
OP 42
DO 10.3905/jai.2013.16.1.019
VO 16
IS 1
A1 Galen Burghardt
A1 Lianyan Liu
YR 2013
UL https://pm-research.com/content/16/1/19.abstract
AB In recent years considerable research has examined the impact of historical return patterns on the measured risk of both traditional and alternative investments. At the heart of this analysis is the industry’s failure to take the strategy autocorrelation of a security or asset into account when measuring the asset’s underlying risk or in estimating the current risk environment (Lo [2002]). As the authors show in this article, the industry’s failure to take autocorrelation into account has produced estimates of equity volatility that are much lower than they should be, and estimates of CTA volatility that are much higher. Given the results reported in this article, an equity volatility of 16% really should be closer to 20%, and a CTA volatility of 10% should be closer to 6% or 7%.TOPICS: Commodities, futures and forward contracts, statistical methods, risk management