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Downside Risk and Investment Choice

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  • Tse, K S Maurice
  • Uppal, Jamshed
  • White, Mark A

Abstract

This paper develops an optimal investment strategy for individuals concerned with avoiding the possibility of realizing returns below a predetermined target level within a prescribed period of time. Assuming a Brownian motion process, a model is developed which allows computation of the exact probability of failure. The algorithm and associated comparative statics with respect to the mean and standard deviation of returns, target return, time horizon, and risk-free rate of return are likely to have many useful practical applications. Copyright 1993 by MIT Press.

Suggested Citation

  • Tse, K S Maurice & Uppal, Jamshed & White, Mark A, 1993. "Downside Risk and Investment Choice," The Financial Review, Eastern Finance Association, vol. 28(4), pages 585-605, November.
    • Handle: RePEc:bla:finrev:v:28:y:1993:i:4:p:585-605
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    Cited by:

    1. Ruili Sun & Tiefeng Ma & Shuangzhe Liu & Milind Sathye, 2019. "Improved Covariance Matrix Estimation for Portfolio Risk Measurement: A Review," JRFM, MDPI, vol. 12(1), pages 1-34, March.
    2. Dar-Hsin Chen & Chun-Da Chen & Jianguo Chen, 2009. "Downside risk measures and equity returns in the NYSE," Applied Economics, Taylor & Francis Journals, vol. 41(8), pages 1055-1070.
    3. Ho, Kwok & Milevsky, Moshe Arye & Robinson, Chris, 1999. "International equity diversification and shortfall risk," Financial Services Review, Elsevier, vol. 8(1), pages 11-25.

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