Advanced Search
MyIDEAS: Login to save this article or follow this journal

The effect of downside risk reduction on UK equity portfolios included with Managed Futures Funds

Contents:

Author Info

  • Tee, Kai-Hong
Registered author(s):

    Abstract

    The concept of asymmetric risk estimation has become more widely applied in risk management in recent years with the increased use of Value-at-risk (VaR) methodologies. This paper uses the n-degree lower partial moment (LPM) models, of which VaR is a special case, to empirically analyse the effect of downside risk reduction on UK portfolio diversification and returns. Data on Managed Futures Funds are used to replicate the increasingly popular preference of investors for including hedge funds and fund-of-funds type investments in the UK equity portfolios. The result indicates, however that the potential benefits of fund diversification may deteriorate following reductions in downside risk tolerance levels. These results appear to reinforce the importance of risk (tolerance) perception, particularly downside risk, when making decisions to include Managed Futures Funds in UK equity portfolios as the empirical analysis suggests that this could negatively affect portfolio returns.

    Download Info

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
    File URL: http://www.sciencedirect.com/science/article/B6W4W-4XB1TCR-1/2/7d45ef431e3958e5b0443177a493fc91
    Download Restriction: Full text for ScienceDirect subscribers only

    As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

    Bibliographic Info

    Article provided by Elsevier in its journal International Review of Financial Analysis.

    Volume (Year): 18 (2009)
    Issue (Month): 5 (December)
    Pages: 303-310

    as in new window
    Handle: RePEc:eee:finana:v:18:y:2009:i:5:p:303-310

    Contact details of provider:
    Web page: http://www.elsevier.com/locate/inca/620166

    Related research

    Keywords: Downside risk Value-at-risk Lower partial moment Managed Futures Portfolio diversification;

    References

    References listed on IDEAS
    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
    as in new window
    1. Jon Danielsson & Bjørn N. Jorgensen & Mandira Sarma & C. G. de Vries, 2005. "Comparing downside risk measures for heavy tailed distribution," LSE Research Online Documents on Economics 24671, London School of Economics and Political Science, LSE Library.
    2. Philippe Artzner & Freddy Delbaen & Jean-Marc Eber & David Heath, 1999. "Coherent Measures of Risk," Mathematical Finance, Wiley Blackwell, vol. 9(3), pages 203-228.
    3. David Moreno & Paulina Marco & Ignacio Olmeda, 2005. "Risk forecasting models and optimal portfolio selection," Applied Economics, Taylor & Francis Journals, vol. 37(11), pages 1267-1281.
    4. Elton, Edwin J & Gruber, Martin J & Urich, Thomas J, 1978. "Are Betas Best?," Journal of Finance, American Finance Association, vol. 33(5), pages 1375-84, December.
    5. Simkowitz, Michael A. & Beedles, William L., 1978. "Diversification in a Three-Moment World," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 13(05), pages 927-941, December.
    6. Fishburn, Peter C, 1977. "Mean-Risk Analysis with Risk Associated with Below-Target Returns," American Economic Review, American Economic Association, vol. 67(2), pages 116-26, March.
    7. Nawrocki, David N., 1992. "The characteristics of portfolios selected by n-degree Lower Partial Moment," International Review of Financial Analysis, Elsevier, vol. 1(3), pages 195-209.
    8. Bawa, Vijay S., 1975. "Optimal rules for ordering uncertain prospects," Journal of Financial Economics, Elsevier, vol. 2(1), pages 95-121, March.
    9. Carlo Acerbi & Dirk Tasche, 2001. "On the coherence of Expected Shortfall," Papers cond-mat/0104295, arXiv.org, revised May 2002.
    10. Namwon Hyung, 2005. "Portfolio Diversification Effects of Downside Risk," Journal of Financial Econometrics, Society for Financial Econometrics, vol. 3(1), pages 107-125.
    11. Chunhachinda, Pornchai & Dandapani, Krishnan & Hamid, Shahid & Prakash, Arun J., 1997. "Portfolio selection and skewness: Evidence from international stock markets," Journal of Banking & Finance, Elsevier, vol. 21(2), pages 143-167, February.
    12. C. James Hueng & Ruey Yau, 2006. "Investor preferences and portfolio selection: is diversification an appropriate strategy?," Quantitative Finance, Taylor & Francis Journals, vol. 6(3), pages 255-271.
    13. Namwon Hyung & Casper G. de Vries, 2005. "Portfolio Diversification Effects of Downside Risk," Tinbergen Institute Discussion Papers 05-008/2, Tinbergen Institute.
    14. Veld, Chris & Veld-Merkoulova, Yulia V., 2008. "The risk perceptions of individual investors," Journal of Economic Psychology, Elsevier, vol. 29(2), pages 226-252, April.
    15. Harry Markowitz, 1952. "Portfolio Selection," Journal of Finance, American Finance Association, vol. 7(1), pages 77-91, 03.
    16. Eun, Cheol S & Resnick, Bruce G, 1988. " Exchange Rate Uncertainty, Forward Contracts, and International Portfolio Selection," Journal of Finance, American Finance Association, vol. 43(1), pages 197-215, March.
    17. Prakash, Arun J. & Chang, Chun-Hao & Pactwa, Therese E., 2003. "Selecting a portfolio with skewness: Recent evidence from US, European, and Latin American equity markets," Journal of Banking & Finance, Elsevier, vol. 27(7), pages 1375-1390, July.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as in new window

    Cited by:
    1. Cumova, Denisa & Nawrocki, David, 2014. "Portfolio optimization in an upside potential and downside risk framework," Journal of Economics and Business, Elsevier, vol. 71(C), pages 68-89.

    Lists

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    Statistics

    Access and download statistics

    Corrections

    When requesting a correction, please mention this item's handle: RePEc:eee:finana:v:18:y:2009:i:5:p:303-310. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei).

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.