The Entrenched Kurtosis in Current Portfolio Returns

Responses of asset returns to indices introduce kurtosis in portfolio returns. Preoccupation with 'tail-risk' entails modeling portfolio exposure to second and fourth moment deviations around the mean return. For quadratic utility optimizers, kurtosis aversion could be viewed as either platykurtosis-seeking or leptokurtosis-aversion. The investor observes kurtosis and operates at a 'prudent' trade-off between it and variance, leading to abrupt adjustments. Combined risk tolerance mitigates his response, as weights are adjusted in comparison to rolling deviations of mean-variance portfolio returns from normality. Maintaining value through the crisis is achieved by abrupt changes in consistent kurtosis, and moderation once the latter become entrenched.