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Portfolio selection in an expected shortfall framework during the recent ‘credit crunch’ period

Author

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  • Lan-chih Ho
  • John Cadle
  • Michael Theobald

    (Accounting and Finance Subject Group, Birmingham Business School, University of Birmingham)

Abstract

Portfolio selection models using variance, Value-at-Risk (VaR) and expected shortfall measures of risk are analysed, assuming differing underlying return distributions. The expected shortfall approach provides advantages relative to the VaR approach in terms of lower portfolio downside risks. Furthermore, using the extreme value distribution provides more insights for the investor relative to the empirical distribution. Analysing portfolio selection using these differing risk measures around the recent sub-prime mortgage problem period provides topical insights into the asset allocation process for the investor.

Suggested Citation

  • Lan-chih Ho & John Cadle & Michael Theobald, 2008. "Portfolio selection in an expected shortfall framework during the recent ‘credit crunch’ period," Journal of Asset Management, Palgrave Macmillan, vol. 9(2), pages 121-137, July.
    • Handle: RePEc:pal:assmgt:v:9:y:2008:i:2:d:10.1057_jam.2008.15
    DOI: 10.1057/jam.2008.15
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    References listed on IDEAS

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    5. Jaschke, Stefan R., 2001. "Quantile-VaR is the wrong measure to quantify market risk for regulatory purposes," SFB 373 Discussion Papers 2001,55, Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes.
    6. Carlo Acerbi & Claudio Nordio & Carlo Sirtori, 2001. "Expected Shortfall as a Tool for Financial Risk Management," Papers cond-mat/0102304, arXiv.org.
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    Cited by:

    1. Lan-chih Ho & John Cadle & Michael Theobald, 2011. "An analysis of risk-based asset allocation and portfolio insurance strategies," Review of Quantitative Finance and Accounting, Springer, vol. 36(2), pages 247-267, February.
    2. Al Janabi, Mazin A.M., 2014. "Optimal and investable portfolios: An empirical analysis with scenario optimization algorithms under crisis market prospects," Economic Modelling, Elsevier, vol. 40(C), pages 369-381.
    3. Brianna Cain & Ralf Zurbruegg, 2010. "Can switching between risk measures lead to better portfolio optimization?," Journal of Asset Management, Palgrave Macmillan, vol. 10(6), pages 358-369, February.

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