PRIX – A risk index for global private investors

Sebastian Stöckl (Institute for Financial Services, University of Liechtenstein, Vaduz, Liechtenstein)
Michael Hanke (Institute for Financial Services, University of Liechtenstein, Vaduz, Liechtenstein)
Martin Angerer (Institute for Financial Services, University of Liechtenstein, Vaduz, Liechtenstein)

Journal of Risk Finance

ISSN: 1526-5943

Publication date: 20 March 2017

Abstract

Purpose

The purpose of this paper is to create a universal (asset-class-independent) portfolio risk index for a global private investor.

Design/methodology/approach

The authors first discuss existing risk measures and desirable properties of a risk index. Then, they construct a universal (asset-class-independent) portfolio risk measure by modifying Financial Turbulence of Kritzman and Li (2010). Finally, the average portfolio of a representative global private investor is determined, and, by applying the new portfolio risk measure, they derive the Private investor Risk IndeX.

Findings

The authors show that this index exhibits commonly expected properties of risk indices, such as proper reaction to well-known historical market events, persistence in time and forecasting power for both risk and returns to risk.

Practical implications

A dynamic asset allocation example illustrates one potential practical application for global private investors.

Originality/value

As of now, a risk index reflecting the overall risk of a typical multi-asset-class portfolio of global private investors does not seem to exist.

Keywords

Citation

Stöckl, S., Hanke, M. and Angerer, M. (2017), "PRIX – A risk index for global private investors", Journal of Risk Finance, Vol. 18 No. 2, pp. 214-231. https://doi.org/10.1108/JRF-09-2016-0118

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Publisher

:

Emerald Publishing Limited

Copyright © 2017, Emerald Publishing Limited

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