Christian Frei

Frei, Christian

Frei

Christian

Christian Frei

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Unsmoothing smoothed return series for risk management and asset allocation
(Portfolio Management Research, 2024) Frei, Christian
Smoothed returns that can occur as a result of an appraisal-based valuation process distort asset characteristics and, in particular, volatility and correlations. Using a simple but often-used model for smoothed return series, this article analyzes what unsmoothing techniques can achieve with respect to uncovering the true time-series properties. The properties of interest are volatility, autocorrelation, self-correlation, and cross-asset cor- relation. It is shown that, specifically for heavily smoothed return series, volatility estimates might overstate the true volatility, and cross-asset correlations cannot fully be recovered.
01A - Beitrag in wissenschaftlicher Zeitschrift