Utilizing Downside Risk Measures

2014 ◽  
Vol 31 (3) ◽  
pp. 42-50 ◽  
Author(s):  
Michelle McCarthy
Keyword(s):  
Risk Measures ◽  
Downside Risk

scholarly journals Mean-Variance Optimization Is a Good Choice, But for Other Reasons than You Might Think

Risks ◽  
2020 ◽  
Vol 8 (1) ◽  
pp. 29 ◽  
Author(s):  
Andrea Rigamonti
Keyword(s):  
Portfolio Optimization ◽  
Asset Allocation ◽  
Risk Measures ◽  
Traditional Approach ◽  
Real Data ◽  
Downside Risk ◽  
Good Choice ◽  
Mean Variance Portfolio ◽  
Mean Variance ◽  
Allocation Decisions

Mean-variance portfolio optimization is more popular than optimization procedures that employ downside risk measures such as the semivariance, despite the latter being more in line with the preferences of a rational investor. We describe strengths and weaknesses of semivariance and how to minimize it for asset allocation decisions. We then apply this approach to a variety of simulated and real data and show that the traditional approach based on the variance generally outperforms it. The results hold even if the CVaR is used, because all downside risk measures are difficult to estimate. The popularity of variance as a measure of risk appears therefore to be rationally justified.

scholarly journals Portfolio Managers on the Colombian Open-End Mutual Fund Industry: Performance, downside risk and persistence

2019 ◽  
Vol 32 (59) ◽  
Author(s):  
Fredy Alexander Pulga Vivas ◽  
María Teresa Macías Joven
Keyword(s):  
Mutual Funds ◽  
Mutual Fund ◽  
Risk Measures ◽  
Downside Risk ◽  
Investment Strategies ◽  
Short Term ◽  
Past Performance ◽  
Investment Trusts ◽  
Bond Funds ◽  
Equity Funds

This study explores whether Colombian mutual funds deliver abnormal risk-adjusted returns and delves on their persistence. Through traditional and downside risk measures based on Modern Portfolio Theory and Lower Partial Moments, this article evaluates the performance of 146 mutual funds categorized by investment type and fund manager. This assessment suggests that mutual funds underperform the market and deliver real returns. Similarly, bond funds underperform equity funds, and investment trusts underperform brokerage firms as managers. Furthermore, bond funds and funds managed by investment trusts exhibit short-term performance persistence. These results suggest that investors may pursue passive investment strategies, and that they must analyze past performance to invest in the short-term.

scholarly journals Measurement of Commodity Price Risk: an overview of Brazilian agricultural markets

2017 ◽  
Vol 55 (3) ◽  
pp. 515-532
Author(s):  
Daniel Henrique Dario Capitani ◽  
Fabio Mattos
Keyword(s):  
At Risk ◽  
Value At Risk ◽  
Risk Measures ◽  
Commodity Price ◽  
Downside Risk ◽  
Conditional Value At Risk ◽  
Price Risk ◽  
Agricultural Markets ◽  
Price Variability ◽  
Agricultural Industry

Abstract: This study explores different procedures to estimate price risk in commodity markets. Focusing on Brazilian agricultural markets, the paper proposes to assess both dispersion and downside risk measures using five different approaches (volatility, coefficient of variation, lower partial moments, value at risk and conditional value at risk). Results suggest that some commodities have large price variability but small downside risk, while other commodities show small price variability and large downside risk. Thus, there is no single answer to the question of which commodity exhibits more price risk, but rather distinct answers depending on how risk is perceived by different individuals. These findings are relevant for agents in the agricultural industry as they affect marketing and risk management decisions and for policy makers involved in support programs to agriculture.

Downside risk measures and equity returns in the NYSE

2009 ◽  
Vol 41 (8) ◽  
pp. 1055-1070 ◽  
Author(s):  
Dar-Hsin Chen ◽  
Chun-Da Chen ◽  
Jianguo Chen
Keyword(s):  
Risk Measures ◽  
Downside Risk ◽  
Equity Returns

Is There an Intertemporal Relation between Downside Risk and Expected Returns?

2009 ◽  
Vol 44 (4) ◽  
pp. 883-909 ◽  
Author(s):  
Turan G. Bali ◽  
K. Ozgur Demirtas ◽  
Haim Levy
Keyword(s):  
Stock Returns ◽  
Value At Risk ◽  
Risk Measures ◽  
Downside Risk ◽  
Expected Returns ◽  
Significant Relation ◽  
Macroeconomic Variables ◽  
Portfolio Returns ◽  
Risk Return ◽  
Expected Stock Returns

AbstractThis paper examines the intertemporal relation between downside risk and expected stock returns. Value at Risk (VaR), expected shortfall, and tail risk are used as measures of downside risk to determine the existence and significance of a risk-return tradeoff. We find a positive and significant relation between downside risk and the portfolio returns on NYSE/AMEX/Nasdaq stocks. VaR remains a superior measure of risk when compared with the traditional risk measures. These results are robust across different stock market indices, different measures of downside risk, loss probability levels, and after controlling for macroeconomic variables and volatility over different holding periods as originally proposed by Harrison and Zhang (1999).

scholarly journals Downside CAPM: The case of South Africa

2017 ◽  
Vol 9 (2) ◽  
pp. 578-608
Author(s):  
Kwasi Okyere-Boakye ◽  
Brandon O’Malley
Keyword(s):  
Asset Pricing ◽  
Risk Measures ◽  
Downside Risk ◽  
Capital Asset Pricing Model ◽  
Capital Asset Pricing ◽  
Pricing Model ◽  
Capital Asset ◽  
Asset Pricing Model ◽  
Risk Framework ◽  
Measures Of Risk

Beta and the capital asset pricing model have traditionally been the preferred measures of risk. However, there is growing literature against the use of the capital asset pricing model to determine the cost of equity in markets, such as emerging markets, where investors display mean-semivariance behaviour and, where share returns are non-normal and asymmetric. Downside risk measures such as semideviation, downside beta and the downside capital asset pricing model have been found to be plausible alternate measures of risk. This study investigates empirically the relationship between risk and return in a downside risk framework and a regular risk framework using returns on companies listed on the JSE Securities Exchange. The empirical evidence from this study indicates that while downside beta and semideviation significantly explain the variation in returns, they do not support them as being more appropriate measures of risk over beta and standard deviation.

Efficient fund of hedge funds construction under downside risk measures

2006 ◽  
Vol 30 (2) ◽  
pp. 503-518 ◽  
Author(s):  
David P. Morton ◽  
Elmira Popova ◽  
Ivilina Popova
Keyword(s):  
Hedge Funds ◽  
Risk Measures ◽  
Downside Risk

scholarly journals Comparing downside risk measures for heavy tailed distributions

2006 ◽  
Vol 92 (2) ◽  
pp. 202-208 ◽  
Author(s):  
Jón Daníelsson ◽  
Bjørn N. Jorgensen ◽  
Mandira Sarma ◽  
Casper G. de Vries
Keyword(s):  
Risk Measures ◽  
Downside Risk ◽  
Heavy Tailed Distributions ◽  
Heavy Tailed

scholarly journals Are Islamic mutual funds exposed to lower risk compared to their conventional counterparts?

2020 ◽  
Vol 12 (1) ◽  
pp. 69-87 ◽  
Author(s):  
Farrukh Naveed ◽  
Idrees Khawaja ◽  
Lubna Maroof
Keyword(s):  
Risk Analysis ◽  
Mutual Funds ◽  
Value At Risk ◽  
Lower Risk ◽  
Risk Measures ◽  
Risk Preferences ◽  
Downside Risk ◽  
Risk Exposure ◽  
Individual Investors ◽  
Content Type

Purpose This study aims to comparatively analyze the systematic, idiosyncratic and downside risk exposure of both Islamic and conventional funds in Pakistan to see which of the funds has higher risk exposure. Design/methodology/approach The study analyzes different types of risks involved in both Islamic and conventional funds for the period from 2009 to 2016 by using different risk measures. For systematic and idiosyncratic risk single factor CAPM and multifactor models such as Fama French three factors model and Carhart four factors model are used. For downside risk analysis different measures such as downside beta, relative beta, value at risk and expected short fall are used. Findings The study finds that Islamic funds have lower risk exposure (including total, systematic, idiosyncratic and downside risk) compared with their conventional counterparts in most of the sample years, and hence, making them appear more attractive for investment especially for Sharīʿah-compliant investors preferring low risk preferences. Practical implications As this study shows, Islamic mutual funds exhibit lower risk exposure than their conventional counterparts so investors with lower risk preferences can invest in these kinds of funds. In this way, this research provides the input to the individual investors (especially Sharīʿah-compliant investors who want to avoid interest based investment) to help them with their investment decisions as they can make a more diversified portfolio by considering Islamic funds as a mean for reducing the risk exposure. Originality/value To the best of the author’s knowledge, this study is the first attempt at world level in looking at the comparative risk analysis of various types of the risks as follows: systematic, idiosyncratic and downside risk, for both Islamic and conventional funds, and thus, provides significant contribution in the literature of mutual funds.

Sign in / Sign up

Export Citation Format

Share Document