Backward-looking measures do not always predict future asset risk - Orbis

UK house prices and property in 2007 as an example

Victoria McKeever
clock • 2 min read

Backward-looking interpretations of risk are not the best way to predict the future behaviour of asset classes, as seen in the previous market crash, Orbis Investment analyst Ashley Lynn has said.

"When you talk to a lot of financial analysts and economists, they discuss risk in terms of betas, Sharpe ratios and volatility - a lot of mathematical numbers that are historically backward-looking," said Lynn (pictured).  She added, however, that was not to say these measures were not important. At the same time, she said: "Remember that most of these ratios came out of the works of Sharpe and Markowitz - they believed in efficient markets." In this instance, if all assets were correctly priced, the only risk would be them randomly moving up or down. Nine in ten risk-targeted ...

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