Article 1

From: Andi
Affiliation:
Address: performanceanalysis@andreassteiner.net
Date: 27 Nov 2006
Time: 05:07:51

Comments

On a positive note (pun intended), the process of generating a "meaningless" figure like ten-day 99% VaR creates a lot of "meaningful" information as a byproduct. An organisation calculating ten-day 99% VaR is very well aware of its exposures (although it might not be aware of their implications). In my opinion, the mainstream financial industry today is overregulated in a way which is more dangerous than having a lower density of regulations in general. There are other examples, but especially VaR-based regulations are very much industry-driven, at the cost of protecting (relevant!) consumer/client interests. The real issue of the money management indsutry is also not taking too much or extreme risks, on the contrary: it is about taking not enough risk and/or not the "right" risks. A large majority of porfessional money managers underperform their benchmarks on a consistent basis, this has been analyzed to death. As the production function in money management is mainly a risk-return relationship, I am highly suspicious about regulatory approaches to "capping" or limiting risks. Most of the time, all they do is provide money managers an excuse why they weren't able to earn the fee.

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