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

Mean-Semivariance Efficient Frontier: A Downside Risk Model for Portfolio Selection

Contents:

Author Info

  • Enrique Ballestero
Registered author(s):

    Abstract

    An ongoing stream in financial analysis proposes mean-semivariance in place of mean-variance as an alternative approach to portfolio selection, since segments of investors are more averse to returns below the mean value than to deviations above and below the mean value. Accordingly, this paper searches for a stochastic programming model in which the portfolio semivariance is the objective function to be minimized subject to standard parametric constraints, which leads to the mean-semivariance efficient frontier. The proposed model relies on an empirically tested basis, say, portfolio diversification and the empirical validity of Sharpe's beta regression equation relating each asset return to the market. From this basis, the portfolio semivariance matrix form is strictly mathematically derived, thus an operational quadratic objective function is obtained without resorting to heuristics. Ease of computation is highlighted by a numerical example, which allows one to compare the results from the proposed mean-semivariance approach with those derived from the traditional mean-variance model.

    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.tandfonline.com/doi/abs/10.1080/1350486042000254015
    Download Restriction: Access to full text is restricted to subscribers.

    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 Taylor & Francis Journals in its journal Applied Mathematical Finance.

    Volume (Year): 12 (2005)
    Issue (Month): 1 ()
    Pages: 1-15

    as in new window
    Handle: RePEc:taf:apmtfi:v:12:y:2005:i:1:p:1-15

    Contact details of provider:
    Web page: http://www.tandfonline.com/RAMF20

    Order Information:
    Web: http://www.tandfonline.com/pricing/journal/RAMF20

    Related research

    Keywords: Covariance matrix; downside risk; parametric quadratic programming; portfolio semivariance; risk measures;

    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. J. G. Kallberg & W. T. Ziemba, 1983. "Comparison of Alternative Utility Functions in Portfolio Selection Problems," Management Science, INFORMS, vol. 29(11), pages 1257-1276, November.
    2. Dybvig, Philip H, 1984. " Short Sales Restrictions and Kinks on the Mean Variance Frontier," Journal of Finance, American Finance Association, vol. 39(1), pages 239-44, March.
    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. Beach, Steven L., 2011. "Semivariance decomposition of country-level returns," International Review of Economics & Finance, Elsevier, vol. 20(4), pages 607-623, October.
    2. Marco Corazza & Giovanni Fasano & Riccardo Gusso, 2011. "Particle Swarm Optimization with non-smooth penalty reformulation for a complex portfolio selection problem," Working Papers 2011_10, Department of Economics, University of Venice "Ca' Foscari".
    3. Ballestero, Enrique & Bravo, Mila & Pérez-Gladish, Blanca & Arenas-Parra, Mar & Plà-Santamaria, David, 2012. "Socially Responsible Investment: A multicriteria approach to portfolio selection combining ethical and financial objectives," European Journal of Operational Research, Elsevier, vol. 216(2), pages 487-494.
    4. Cumova, Denisa & Nawrocki, David, 2011. "A symmetric LPM model for heuristic mean-semivariance analysis," Journal of Economics and Business, Elsevier, vol. 63(3), pages 217-236, May.

    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:taf:apmtfi:v:12:y:2005:i:1:p:1-15. 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: (Michael McNulty).

    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.