Investment Management

In a 2014 study, Benjamin Auer, together with Frank Schuhmacher, shows that within a generalised location-and-scale (LS) framework of the Meyer and Rasche (1992) type – which is a generalisation of the LS model dating back to Hans-Werner Sinn (1983) – a wide variety of investment performance measures have a decision-theoretic foundation and produce identical population rankings of risky assets. These results not only justify the use of many performance measures (including the Sharpe ratio) in skewed and fat-tailed environments but also provide a powerful framework in which the sample estimation errors of conceptually different performance measures can be compared with each other.

Benjamin Auer will be visiting CES from 22 November to 20 December 2015. While at CES, Mr Auer will mainly be working on two research projects. In the first one, he uses the generalised LS framework and a new measure of estimation error to compare the estimation error of popular measures of total risk. Based on a simulation study with different distributional settings, he seeks to identify the best risk measures for small sample sizes. In the second project, Mr Auer shows that, in the US market, the well-known low risk anomaly – according to which low-risk stocks earn higher returns than high-risk stocks – holds not only for beta, the standard deviation or idiosyncratic volatility but for a total of 25 popular risk measures. He seeks to explain this result within a modified LS model that can account for an inverse risk-return relationship and that produces identical population risk rankings for the 25 risk measures under analysis.

Benjamin Auer is an Assistant Professor of Finance at the University of Leipzig. He holds a PhD in financial economics (Dr. rer. pol., University of Leipzig) and has recently been ranked 27th (42nd) in the Handelsblatt Ranking 2014 for researchers below the age of 40 (for research accomplishments in the last five years). His main areas of research are investment management (esp. low risk strategies and sustainable investing), risk and performance measurement (esp. theoretical foundation and extreme value approaches) and applied financial econometrics (esp. time-series modelling and Hurst coefficients).