Year
2006
Authors
RONCORONI Andrea, GALLUCIO S.
Abstract
We introduce a new risk measure quantifying the link between cross-sectional shape and market risk. We compare our risk measure to the traditional cross-yield covariance according to their relative performance. Empirical investigation in the US interest rate market shows that 1) cross-shape risk factors outperform cross-yield risk factors (i.e., yield curve level, slope, and convexity) in explaining the market risk of yield curve dynamics, 2) hedging multiple liabilities against cross-shape risk delivers superior trading strategies compared to those stemming from cross-yield risk management.
GALLUCIO, S. et RONCORONI, A. (2006). A New Measure of Cross-sectional Risk and its Empirical Implications for Portfolio Risk Management. Journal of Banking and Finance, pp. 2387.