2021/12/01 by Christis Katsouris, Katsouris, Christis
Business, Management and Accounting · Economics, Econometrics and Finance · #FOS: Economics and business #Financial Markets and Investment Strategies #Portfolio Management (q-fin.PM) #Private Equity and Venture Capital #q-fin.PM
paper · pdf · doi:10.48550/arxiv.2112.12031
arxiv created 2021/12/01 · openalex publication_date 2021/12/01 · arxiv updated 2021/12/23 · openalex created_date 2025/10/10 · openalex updated_date 2026/07/28
We propose a novel risk matrix to characterize the optimal portfolio choice of an investor with tail concerns. The diagonal of the matrix contains the Value-at-Risk of each asset in the portfolio and the off-diagonal the pairwise Delta-CoVaR measures reflecting tail connections between assets. First, we derive the conditions under which the associated quadratic risk function has a closed-form solution. Second, we examine the relationship between portfolio risk and eigenvector centrality. Third, we show that portfolio risk is not necessarily increasing with respect to stock centrality. Forth, we demonstrate under certain conditions that asset centrality increases the optimal weight allocation of the asset to the portfolio. Overall, our empirical study indicates that a network topology which exhibits low connectivity is outperformed by high connectivity based on a Sharpe ratio test.