TY - JOUR
T1 - The proper use of risk measures in portfolio theory
AU - Ortobelli, Sergio
AU - Rachev, Svetlozar T.
AU - Stoyanov, Stoyan
AU - Fabozzi, Frank J.
AU - Biglova, Almira
N1 - Funding Information:
The authors thank Andrew Chen for helpful comments of an earlier draft of this paper. Rachev’s research has been supported by grants from Division of Mathematical, Life and Physical Sciences, College of Letters and Science, University of California, Santa Barbara and the Deutschen Forschungsgemeinschaft. Ortobelli’s research has been partially supported under Murst 40%, 60% 2003, 2004, 2005.
PY - 2005/12
Y1 - 2005/12
N2 - This paper discusses and analyzes risk measure properties in order to understand how a risk measure has to be used to optimize the investor's portfolio choices. In particular, we distinguish between two admissible classes of risk measures proposed in the portfolio literature: safety-risk measures and dispersion measures. We study and describe how the risk could depend on other distributional parameters. Then, we examine and discuss the differences between statistical parametric models and linear fund separation ones. Finally, we propose an empirical comparison among three different portfolio choice models which depend on the mean, on a risk measure, and on a skewness parameter. Thus, we assess and value the impact on the investor's preferences of three different risk measures even considering some derivative assets among the possible choices.
AB - This paper discusses and analyzes risk measure properties in order to understand how a risk measure has to be used to optimize the investor's portfolio choices. In particular, we distinguish between two admissible classes of risk measures proposed in the portfolio literature: safety-risk measures and dispersion measures. We study and describe how the risk could depend on other distributional parameters. Then, we examine and discuss the differences between statistical parametric models and linear fund separation ones. Finally, we propose an empirical comparison among three different portfolio choice models which depend on the mean, on a risk measure, and on a skewness parameter. Thus, we assess and value the impact on the investor's preferences of three different risk measures even considering some derivative assets among the possible choices.
KW - Dispersion measures
KW - Fund separation
KW - Investors' preference
KW - Portfolio selection
KW - Risk aversion
KW - Safety-risk measures
KW - Skewness
UR - http://www.scopus.com/inward/record.url?scp=28844490525&partnerID=8YFLogxK
U2 - 10.1142/S0219024905003402
DO - 10.1142/S0219024905003402
M3 - Review article
AN - SCOPUS:28844490525
SN - 0219-0249
VL - 8
SP - 1107
EP - 1133
JO - International Journal of Theoretical and Applied Finance
JF - International Journal of Theoretical and Applied Finance
IS - 8
ER -