Comparing Strategy Risk Models on the Taiwanese Stock Market

Patev, P., and K. Petkov. 2018. "Comparing Strategy Risk Models on the Taiwanese Stock Market." The Journal of Wealth Management 21 (3): 79-93

Posted: 20 Dec 2018

See all articles by Plamen Patev

Plamen Patev

I Shou University, Department of International Finance; ABIR Analytics

Kaloyan Petkov

D. A. Tsenov Academy of Economics; ABIR Analytics

Date Written: November 25, 2018

Abstract

Since the first appearance of the fundamental law of active management, researchers have proposed several directions for its improvement. One important area is in active risk. As the authors explain, instead of using unconditional active risk as a risk estimator, a new source of active risk, strategy risk, has been added to risk models. This is of interest in models for strategy risk estimation and their application in specific conditions of emerging markets. The authors test three models proposed by Qian and Hua, Ye, and Ding and Martin and prove the theoretical consistency of Ding and Martin’s model, as it involves errors from cross-sectional forecasting. For the case of Taiwan, strategy risk presents an important share of all active risk. Here, the team proves that the main source of strategy risk remains the volatility of the information coefficient over time and note that errors from the cross-sectional forecasting model must be addressed in managers’ risk model.

Note: © 2018 IPR Journals. All rights reserved

Keywords: active portfolio management, active risk, strategy risk, emerging markets

JEL Classification: G11, G32, C21

Suggested Citation

Patev, Plamen and Petkov, Kaloyan and Petkov, Kaloyan, Comparing Strategy Risk Models on the Taiwanese Stock Market (November 25, 2018). Patev, P., and K. Petkov. 2018. "Comparing Strategy Risk Models on the Taiwanese Stock Market." The Journal of Wealth Management 21 (3): 79-93, Available at SSRN: https://ssrn.com/abstract=3294887

Plamen Patev (Contact Author)

I Shou University, Department of International Finance ( email )

No.1, Sec. 1, Syuecheng Rd., Dashu District,
Kaohsiung, 84001
Taiwan

ABIR Analytics ( email )

Kaloyan Petkov

D. A. Tsenov Academy of Economics ( email )

2 Em. Chakarov str.
Svishtov, Veliko Tarnovo 5250
Bulgaria

ABIR Analytics ( email )

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