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Mean-Coherent Risk and Mean-Variance Approaches in Portfolio Selection: An Empirical Comparison

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  • Polbennikov, S.Y.
  • Melenberg, B.

    (Tilburg University, Center for Economic Research)

Abstract

We empirically analyze the implementation of coherent risk measures in portfolio selection.First, we compare optimal portfolios obtained through mean-coherent risk optimization with corresponding mean-variance portfolios.We find that, even for a typical portfolio of equities, the outcomes can be statistically and economically different.Furthermore, we apply spanning tests for the mean-coherent risk efficient frontiers, which we compare to their equivalents in the meanvariance framework.For portfolios of common stocks the outcomes of the spanning tests seem to be statistically the same.

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Bibliographic Info

Paper provided by Tilburg University, Center for Economic Research in its series Discussion Paper with number 2005-100.

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Date of creation: 2005
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Handle: RePEc:dgr:kubcen:2005100

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Related research

Keywords: portfolio choice; mean variance; mean coherent risk; comparison;

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References

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  1. Melenberg, B. & Polbennikov, S.Y., 2005. "Testing for Mean-Coherent Regular Risk Spanning," Discussion Paper 2005-99, Tilburg University, Center for Economic Research.
  2. Tasche, Dirk, 2002. "Expected shortfall and beyond," Journal of Banking & Finance, Elsevier, vol. 26(7), pages 1519-1533, July.
  3. Kerkhof, Jeroen & Melenberg, Bertrand, 2004. "Backtesting for risk-based regulatory capital," Journal of Banking & Finance, Elsevier, vol. 28(8), pages 1845-1865, August.
  4. Gilbert W. Bassett Jr & Roger Koenker & Gregory Kordas, 2004. "Pessimistic portfolio allocation and Choquet expected utility," CeMMAP working papers CWP09/04, Centre for Microdata Methods and Practice, Institute for Fiscal Studies.
  5. De Giorgi, Enrico, 2005. "Reward-risk portfolio selection and stochastic dominance," Journal of Banking & Finance, Elsevier, vol. 29(4), pages 895-926, April.
  6. Roon, F.A. de & Nijman, T.E., 1998. "Testing for mean-variance spanning: A survey," Discussion Paper 1998-132, Tilburg University, Center for Economic Research.
  7. Newey, Whitney K & West, Kenneth D, 1987. "A Simple, Positive Semi-definite, Heteroskedasticity and Autocorrelation Consistent Covariance Matrix," Econometrica, Econometric Society, vol. 55(3), pages 703-08, May.
  8. Huberman, Gur & Kandel, Shmuel, 1987. " Mean-Variance Spanning," Journal of Finance, American Finance Association, vol. 42(4), pages 873-88, September.
  9. Philippe Artzner & Freddy Delbaen & Jean-Marc Eber & David Heath, 1999. "Coherent Measures of Risk," Mathematical Finance, Wiley Blackwell, vol. 9(3), pages 203-228.
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Cited by:
  1. Melenberg, B. & Polbennikov, S.Y., 2005. "Testing for Mean-Coherent Regular Risk Spanning," Discussion Paper 2005-99, Tilburg University, Center for Economic Research.

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