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The Development of a Mean-Semivariance Approach to Capital Budgeting

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  • Porter, R. Burr
  • Bey, Roger P.
  • Lewis, David C.

Abstract

Recent trends in capital budgeting have been toward more complex decision rules with increasingly sophisticated treatments of risk. Although they have the virtue of simplicity, undiscounted methods such as the payback do not account for the time value of money. Net present value and internal rate of return consider the time value of money but many questions remain about the proper discount rate, the reinvestment assumption, and the statistical interrelations among projects. The latest approaches, referred to as portfolio models, are substantially more complicated but are the only methods that consider the statistical interrelations among the various assets. The most popular portfolio approach has been the mean-variance (E-V) model developed by Sharpe [10] and Lintner [5].

Suggested Citation

  • Porter, R. Burr & Bey, Roger P. & Lewis, David C., 1975. "The Development of a Mean-Semivariance Approach to Capital Budgeting," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 10(4), pages 639-649, November.
    • Handle: RePEc:cup:jfinqa:v:10:y:1975:i:04:p:639-649_01
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    1. Roger P. Bey, 1979. "Mean-Variance, Mean-Semivariance, And Dcf Estimates Of A Public Utility'S Cost Of Equity," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 2(1), pages 13-26, March.

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