Mean-semivariance behavior: An alternative behavioral model
AbstractThe most widely-used measure of an asset's risk, beta, stems from an equilibrium in which investors display mean-variance behavior. This behavioral criterion assumes that portfolio risk is measured by the variance (or standard deviation) of returns, which is a questionable measure of risk. The semivariance of returns is a more plausible measure of risk (as Markowitz himself admits) and is backed by theoretical, empirical, and practical considerations. It can also be used to implement an alternative behavioral criterion, mean-semivariance behavior, that is almost perfectly correlated to both expected utility and the utility of mean compound return.
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Bibliographic InfoPaper provided by IESE Business School in its series IESE Research Papers with number D/492.
Length: 19 pages
Date of creation: 25 Feb 2003
Date of revision:
downside risk; semideviation; asset pricing;
Find related papers by JEL classification:
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing
This paper has been announced in the following NEP Reports:
- NEP-ALL-2003-04-02 (All new papers)
- NEP-CFN-2003-04-02 (Corporate Finance)
- NEP-FIN-2003-04-02 (Finance)
- NEP-FMK-2003-04-02 (Financial Markets)
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