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Portfolio selection using the Riskiness Index

Author

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  • Doron Nisani

Abstract

Purpose - The purpose of this paper is to increase the accuracy of the efficient portfolios frontier and the capital market line using the Riskiness Index. Design/methodology/approach - This paper will develop the mean-riskiness model for portfolio selection using the Riskiness Index. Findings - This paper’s main result is establishing a mean-riskiness efficient set of portfolios. In addition, the paper presents two applications for the mean-riskiness portfolio management method: one that is based on the multi-normal distribution (which is identical to the MV model optimal portfolio) and one that is based on the multi-normal inverse Gaussian distribution (which increases the portfolio’s accuracy, as it includes the a-symmetry and tail-heaviness features in addition to the scale and diversification features of the MV model). Research limitations/implications - The Riskiness Index is not a coherent measurement of financial risk, and the mean-riskiness model application is based on a high-order approximation to the portfolio’s rate of return distribution. Originality/value - The mean-riskiness model increases portfolio management accuracy using the Riskiness Index. As the approximation order increases, the portfolio’s accuracy increases as well. This result can lead to a more efficient asset allocation in the capital markets.

Suggested Citation

  • Doron Nisani, 2018. "Portfolio selection using the Riskiness Index," Studies in Economics and Finance, Emerald Group Publishing Limited, vol. 35(2), pages 330-339, May.
    • Handle: RePEc:eme:sefpps:sef-03-2017-0058
    DOI: 10.1108/SEF-03-2017-0058
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    Citations

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    Cited by:

    1. Doron Nisani & Amit Shelef, 2021. "A statistical analysis of investor preferences for portfolio selection," Empirical Economics, Springer, vol. 61(4), pages 1883-1915, October.

    More about this item

    Keywords

    Asset allocation; Risk management; Portfolio selection; Riskiness index; G11; G14; G32;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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