IDEAS home Printed from https://ideas.repec.org/p/chf/rpseri/rp0906.html
   My bibliography  Save this paper

An Empirical Analysis of Alternative Portfolio Selection Criteria

Author

Listed:
  • Manfred GILLI

    (University of Geneva and Swiss Finance Institute)

  • Enrico SCHUMANN

    (University of Geneva)

Abstract

In modern portfolio theory, financial portfolios are characterised by a desired property, the ‘reward’, and something undesirable, the ‘risk’. While these properties are commonly identified with mean and variance of returns, respectively, we test alternative specifications like partial and conditional moments, quantiles, and drawdowns. More specifically, we analyse the empirical performance of portfolios selected by optimising risk–reward ratios constructed from these alternative functions. We find that these portfolios in many cases outperform our benchmark (minimum-variance), in particular when long-run returns are concerned. However, we also find that all the strategies tested seem quite sensitive to relatively small changes in the data. The main theme throughout our results is that minimising risk, as opposed to maximising reward, often leads to good out-of-sample performance. In contrast, adding a reward-function to the selection criterion improves a given strategy often only marginally.

Suggested Citation

  • Manfred GILLI & Enrico SCHUMANN, 2009. "An Empirical Analysis of Alternative Portfolio Selection Criteria," Swiss Finance Institute Research Paper Series 09-06, Swiss Finance Institute.
  • Handle: RePEc:chf:rpseri:rp0906
    as

    Download full text from publisher

    File URL: http://ssrn.com/abstract=1365167
    Download Restriction: no

    File URL:
    Download Restriction: no
    ---><---

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Marianna Lyra, 2010. "Heuristic Strategies in Finance – An Overview," Working Papers 045, COMISEF.
    2. Mohammad Reza Tavakoli Baghdadabad & Paskalis Glabadanidis, 2013. "Average Drawdown Risk and Capital Asset Pricing," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 16(04), pages 1-21.
    3. Manfred Gilli & Enrico Schumann, 2009. "Robust regression with optimisation heuristics," Working Papers 011, COMISEF.
    4. Manfred Gilli & Enrico Schumann, 2009. "Optimal enough?," Working Papers 010, COMISEF.
    5. Manfred Gilli & Enrico Schumann & Giacomo di Tollo & Gerda Cabej, 2011. "Constructing 130/30-portfolios with the Omega ratio," Journal of Asset Management, Palgrave Macmillan, vol. 12(2), pages 94-108, June.

    More about this item

    Keywords

    Portfolio optimisation; Optimisation heuristics; Partial moments; Downside risk; Expected Shortfall; Value-at-Risk; Risk measures; Performance measures; Threshold Accepting;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:chf:rpseri:rp0906. See general information about how to correct material in RePEc.

    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.

    We have no bibliographic references for this item. You can help adding them by using 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 RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Ridima Mittal (email available below). General contact details of provider: https://edirc.repec.org/data/fameech.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.