Beyond Standard Deviation

Beyond Standard Deviation

In this episode we discuss various approaches to measuring investment risk and outline some of the pitfalls of using the traditional standard deviation of returns metric. We also examine a journal article which introduces a novel methodology for measuring portfolio tail risk by integrating multivariate extreme value theory with orthogonalized returns. The author, Miloš Božović, addresses the computational complexity of traditional risk models by using principal component analysis and GARCH filtering to transform correlated assets into independent series. These individual components are then analyzed using the generalized Pareto distribution to provide precise, closed-form estimates for Value at Risk and Expected Shortfall. Empirical testing on U.S. stock data and currency portfolios demonstrates that this approach identifies extreme market co-movements more accurately than standard parametric methods. Ultimately, the research offers a robust framework for financial institutions to manage risk during periods of significant market stress and volatility. Sources Kim, M., & Zhou, A. (2024). "The Measurement of Investment Risk." World Scholars Review. (Mentored by Dr. Gerard Dericks, Hawaii Pacific University.) Božović, M. (2020). "Portfolio Tail Risk: A Multivariate Extreme Value Theory Approach." Entropy (Basel), 22(12), 1425. doi:10.3390/e22121425. Episode Note This episode draws on the sources listed above and incorporates AI-assisted research synthesis. All content has been reviewed and curated by the host. It is intended for educational purposes only and does not constitute investment or financial advice.

Art and Alternative Investments Today

This episode synthesizes a legal analysis of a recent SEC roundtable regarding the "retailization" of private and alternative investments, and the ninth edition of a comprehensive Art & Finance Report produced by Deloitte Private. Together, these sources explore how alternative assets are becoming more accessible to a broader range of investors while highlighting the legal, regulatory, and practical challenges that accompany this shift. Topics include potential changes to the accredited investor definition, regulatory safeguards for private markets, the growing role of art within wealth management, legacy planning, art-secured lending, fractional ownership, and technology. Collectively, the sources suggest that expanding access to alternative investments will require a careful balance between innovation, investor protection, and professional oversight. Sources Art & Finance Report 2025 | Deloitte. Private (PDF) SEC Holds Roundtable on the “Retailization” of Private/Alternative Investments: A Hint of the Agency's Direction | Global Financial Regulatory Insights (Webpage) Episode Note This episode draws on the sources listed above and incorporates AI-assisted research synthesis. All content has been reviewed and curated by the host. It is intended for educational purposes only and does not constitute investment or financial advice.

The Risks and Market Distortions of Passive Investing

This episode discusses sources that analyze the profound migration of capital from active fund management to passive investment strategies, such as ETFs and index funds. The New Constructs report warns that this trend has created overcrowded trades, where massive inflows into a few dominant tech stocks result in market inefficiencies and inflated valuations. Meanwhile, the Federal Reserve discussion paper examines how this shift impacts financial stability, noting that while passive investing may reduce certain redemption risks, it increases industry concentration and can amplify market volatility. Both documents suggest that the decline of fundamental research creates a "Danger Zone" for passive investors while simultaneously opening new alpha opportunities for disciplined active managers. Ultimately, the authors argue that the unthinking allocation of capital based on index weightings rather than company health poses systemic risks to market liquidity and long-term returns. Here is a bibliography of the 10 sources the episode considers, ordered alphabetically by the author's last name or publisher: * Anadu, K., Kruttli, M., McCabe, P., & Osambela, E. (2020, May 15). The Shift from Active to Passive Investing: Potential Risks to Financial Stability? Finance and Economics Discussion Series 2018-060r1, Board of Governors of the Federal Reserve System. * Azar, J., Schmalz, M. C., & Tecu, I. (2017, March). Anti-Competitive Effects of Common Ownership. IESE Business School – University of Navarra, Working Paper WP-1169-E. * Fang, L., Jiang, H., Sun, Z., Yin, X., & Zheng, L. (2023, November 15). Limits to Diversification: Passive Investing and Market Risk. * Gerlach, D. (2025, August 11). The Detrimental Impact of Index Funds and ETFs on Small-Cap Stocks. myICLUB Blog. * Leithner, C. (2023, October 23). Index funds' key flaws – and how we overcome them. * Lund, D. S. (2018). The Case Against Passive Shareholder Voting. Journal of Corporation Law, 43(3), 494-535. * New Constructs / Trainer, D. (2020, May 11). The Hidden Dangers of Passive Investing. New Constructs. * Pan, K., & Zeng, Y. (2017, June). ETF Arbitrage under Liquidity Mismatch. * QuantPedia. How Does the Passive Investing Impact Market Risk? (Note: The provided source text currently only displays a "429 Too Many Requests" error, making further publication details unavailable). * Reddit (User: joe4942). The passive investing bubble? Burry might be right. Posted in the r/Burryology subreddit. Episode Note This episode draws on the sources listed above and incorporates AI-assisted research synthesis. All content has been reviewed and curated by the host. It is intended for educational purposes only and does not constitute investment or financial advice.

The Inside Ownership Index & ETF

What does "skin in the game" actually look like inside an index? Most benchmarks weight companies by free-float-adjusted market capitalization which is a methodology that, by design, strips out insider-held shares. Haren Bhakta's Inside Ownership Index does close to the opposite, weighting on the very stakes the standard approach removes.   In this conversation, Haren walks through how the IO 100 Index, calculated and published by S&P Dow Jones Indices as a custom index service, was built, what makes insider ownership a legitimate factor rather than a marketing narrative, and how the alignment effect holds up against the standard controls for size, value, and quality. We also explore how investors are currently accessing the methodology (separately managed accounts now, with an ETF pathway on the horizon) and what the broader move toward incentive-aligned investing means for governance, allocator decisions, and the next generation of index construction.   This is the first live guest episode of Expanding Frontiers, and a fitting one, with a conversation that sits squarely at the intersection of factor research, governance, and institutional credibility that the show is built to explore.   About the Guest   Haren Bhakta, CFA, is the Founder and CEO of Inside Ownership Index, a company that constructs equity indices weighted by insider-held share value rather than free-float market cap. The IO 100 Index (Inside Ownership's flagship benchmark) is calculated and published by S&P Dow Jones Indices, with sector-specific variants spanning Financials, Healthcare, Technology, Industrials, Consumer, and Energy. Haren's work centers on the thesis that companies whose leaders hold meaningful personal stakes outperform over time, and that ownership-based benchmarks can complement traditional cap-weighted approaches in institutional portfolios.   Website: https://insideownership.com [https://insideownership.com]   ABOUT THE SHOW Expanding Frontiers is hosted by Kathryn Wilkens, PhD, CAIA, an alternative investments educator at Rutgers University and founder of Pearl Quest LLC. New episodes Wednesdays.   Episode Note Tis content is intended for educational purposes only and does not constitute investment or financial advice.

Private Equity 2026: NAV Lending and Secondaries Market Trends

This episode discusses private equity and venture capital sectors, examining their fundamental structures and current market challenges. They describe the investment ecosystem, where institutional limited partners commit capital to general partners who drive value through operational improvements, financial engineering, and active governance. Current reports highlight a shift in strategy necessitated by ahigh-interest-rate environment, forcing firms to prioritize organic revenue growth and margin expansion over traditional leverage-based returns. Furthermore, the data indicates a recent decline in dry powder and a slowdown in fundraising caused by delayed exits and a widening gap between buyer and seller valuations. Overall, the texts emphasize that successful navigation of today's market requires deep pre-investment analysis, technological due diligence, and a rigorous focus on long-term asset value rather than quick multiple expansion. References * (2025–2026). AB NAVigator. * Bain & Company. (2026). Private Equity Outlook 2026: Gaining Traction. * BDO USA. (2026). Private Equity's Guide to a Sustained High-Rate Environment. * Copia Wealth Studios. (2025/2026). GP vs. LP-Led Secondaries: Taking Control in 2025/2026. * Houlihan Lokey. (2026). LP Compass Secondary Investor Survey. * (2026). Pulse of Private Equity Q4'25: Global Private Equity Activity Analysis. * McKinsey & Company. (2026). Global Private Markets Report 2026. * McKinsey & Company. (2026). 2026 M&A Trends: Navigating a Rapidly Rebounding Market. * SS&C Intralinks. (2026). 2026 Global Private Capital Fundraising Report. * Third Bridge. (2026). PE Due Diligence with AI: The Complete Workflow (2026 Guide). * Wilkens, Kathryn, (2026) “Chapter 2. Private Equity” in Alternative Investments: Expanding Frontiers. * With Intelligence. (2026). Private Equity Outlook 2026: A Durable Recovery. Episode Note This episode draws on the sources listed above and incorporates AI-assisted research synthesis. All content has been reviewed and curated by the host. It is intended for educational purposes only and does not constitute investment or financial advice.