For the purposes of this discussion, assume that you have been hired as a portfolio manager with quantitative investing firm. Assume that under the standards of the firm, a “good” set of quantitative signals exists.
Think for the perspective of an investment fund such as Acadian Asset Management (not a financial advisor).
- Why do professional investment managers care about Risk Control?
- How do professional managers control the risk in their portfolios?
- How do quantitative investors choose portfolios?
- In class we discussed the Grinold-Kahn procedure with a standard deviation of 2% per year. Why did we choose 2% per year? Do you envision circumstances in which a quantitative manager would choose a standard deviation different from 2% in the Grinold-Kahn procedure?
Hint: i) Consider two managers managing funds with different Universes; ii) Consider one manager managing a given fund at two different points in time (e.g., peak of dot-com bubble vs. normal period).