Different downside risk approaches in portfolio optimisation

Variance is commonly used as risk measure in portfolio optimisation to find the trade-off between the risk and return. Investors wish to minimise the risk at the given level of return.However, the mean-variance model has been criticised because of its limitations. The meanvariance model strictly re...

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Main Authors:	Saiful Hafizah Hj. Jaaman, Weng, Hoe Lam, Zaidi Isa
Format:	Article
Language:	English
Published:	Penerbit Universiti Kebangsaan Malaysia 2011
Online Access:	http://journalarticle.ukm.my/2892/ http://journalarticle.ukm.my/2892/ http://journalarticle.ukm.my/2892/1/jqma-7-1-07-saiful.pdf

id	ukm-2892
recordtype	eprints
spelling	ukm-28922016-12-14T06:32:58Z http://journalarticle.ukm.my/2892/ Different downside risk approaches in portfolio optimisation Saiful Hafizah Hj. Jaaman, Weng, Hoe Lam Zaidi Isa, Variance is commonly used as risk measure in portfolio optimisation to find the trade-off between the risk and return. Investors wish to minimise the risk at the given level of return.However, the mean-variance model has been criticised because of its limitations. The meanvariance model strictly relies on the assumptions that the assets returns are normally distributed and investor has quadratic utility function. This model will become inadequate when these assumptions are violated. Besides, variance not only penalises the downside deviation but also the upside deviation. Variance does not match investor’s perception towards risk because upside deviation is desirable for investors. Therefore, downside risk measures such as semi-variance, below target risk and conditional value at risk have been proposed to overcome the deficiencies of variance as risk measure. These downside risk measures have better theoretical properties than variance because they are not restricted to normal distribution and quadratic utility function. The downside risk measures focus on return below a specified target return which better match investor’s perception towards risk. The objective of this paper is to compare the optimal portfolio composition and performance using variance, semivariance,below target risk and conditional value at risk as risk measure. Penerbit Universiti Kebangsaan Malaysia 2011-07 Article PeerReviewed application/pdf en http://journalarticle.ukm.my/2892/1/jqma-7-1-07-saiful.pdf Saiful Hafizah Hj. Jaaman, and Weng, Hoe Lam and Zaidi Isa, (2011) Different downside risk approaches in portfolio optimisation. Journal of Quality Measurement and Analysis, 7 (1). pp. 77-84. ISSN 1823-5670 http://www.ukm.my/~ppsmfst/jqma
repository_type	Digital Repository
institution_category	Local University
institution	Universiti Kebangasaan Malaysia
building	UKM Institutional Repository
collection	Online Access
language	English
description	Variance is commonly used as risk measure in portfolio optimisation to find the trade-off between the risk and return. Investors wish to minimise the risk at the given level of return.However, the mean-variance model has been criticised because of its limitations. The meanvariance model strictly relies on the assumptions that the assets returns are normally distributed and investor has quadratic utility function. This model will become inadequate when these assumptions are violated. Besides, variance not only penalises the downside deviation but also the upside deviation. Variance does not match investor’s perception towards risk because upside deviation is desirable for investors. Therefore, downside risk measures such as semi-variance, below target risk and conditional value at risk have been proposed to overcome the deficiencies of variance as risk measure. These downside risk measures have better theoretical properties than variance because they are not restricted to normal distribution and quadratic utility function. The downside risk measures focus on return below a specified target return which better match investor’s perception towards risk. The objective of this paper is to compare the optimal portfolio composition and performance using variance, semivariance,below target risk and conditional value at risk as risk measure.
format	Article
author	Saiful Hafizah Hj. Jaaman, Weng, Hoe Lam Zaidi Isa,
spellingShingle	Saiful Hafizah Hj. Jaaman, Weng, Hoe Lam Zaidi Isa, Different downside risk approaches in portfolio optimisation
author_facet	Saiful Hafizah Hj. Jaaman, Weng, Hoe Lam Zaidi Isa,
author_sort	Saiful Hafizah Hj. Jaaman,
title	Different downside risk approaches in portfolio optimisation
title_short	Different downside risk approaches in portfolio optimisation
title_full	Different downside risk approaches in portfolio optimisation
title_fullStr	Different downside risk approaches in portfolio optimisation
title_full_unstemmed	Different downside risk approaches in portfolio optimisation
title_sort	different downside risk approaches in portfolio optimisation
publisher	Penerbit Universiti Kebangsaan Malaysia
publishDate	2011
url	http://journalarticle.ukm.my/2892/ http://journalarticle.ukm.my/2892/ http://journalarticle.ukm.my/2892/1/jqma-7-1-07-saiful.pdf
first_indexed	2023-09-18T19:37:18Z
last_indexed	2023-09-18T19:37:18Z
_version_	1777405356673073152

Different downside risk approaches in portfolio optimisation

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