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Wag The Dog: Why Investors Should Understand and Care About Tail Risk

February 2017
As the Boy Scouts’ pledge suggests, “Be Prepared.” Investors should all expect to experience a significant tail event in their lifetime. Too often we hear the commentary that 1-in-100 events occur more often than we expect. Accusations abound that risk models have underestimated the probability of such events. We would suggest that it is our responsibility as practitioners to better define, understand, educate, and use risk models and forecasts to help investors prepare for future tail events.

 

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