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Portfolio Risk Measures: The Time’s Arrow Matters

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  • Alain Ruttiens

Abstract

The traditional ex post risk measure associated to a portfolio, a fund or a market performance, is the standard deviation of a series of past returns, called volatility. We propose an alternative risk measure, that turns out to better quantify the risk actually supported by an investor or asset manager with respect to a portfolio or a fund. This alternative measure is computed from the actual dispersion of successive cumulated returns relative to the corresponding successive cumulated returns produced by an accrued performance of null volatility, which better reflects the dynamics of the risk-return relationship over time. Hence, the proposed name of “accrued returns variability”, for such a risk measure that incorporates the passage of time. Applications are presented, to enlighten the advantage of this risk measure. Copyright Springer Science+Business Media New York 2013

Suggested Citation

  • Alain Ruttiens, 2013. "Portfolio Risk Measures: The Time’s Arrow Matters," Computational Economics, Springer;Society for Computational Economics, vol. 41(3), pages 407-424, March.
    • Handle: RePEc:kap:compec:v:41:y:2013:i:3:p:407-424
    DOI: 10.1007/s10614-012-9336-9
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    References listed on IDEAS

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    1. Sergio Ortobelli & Svetlozar Rachev & Haim Shalit & Frank Fabozzi, 2009. "Orderings and Probability Functionals Consistent with Preferences," Applied Mathematical Finance, Taylor & Francis Journals, vol. 16(1), pages 81-102.
    2. Svetlozar Rachev & Sergio Ortobelli & Stoyan Stoyanov & Frank J. Fabozzi & Almira Biglova, 2008. "Desirable Properties Of An Ideal Risk Measure In Portfolio Theory," International Journal of Theoretical and Applied Finance (IJTAF), World Scientific Publishing Co. Pte. Ltd., vol. 11(01), pages 19-54.
    3. Philippe Artzner & Freddy Delbaen & Jean‐Marc Eber & David Heath, 1999. "Coherent Measures of Risk," Mathematical Finance, Wiley Blackwell, vol. 9(3), pages 203-228, July.
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    Cited by:

    1. Hyungbin Park, 2021. "Modified Mean-Variance Risk Measures for Long-Term Portfolios," Mathematics, MDPI, vol. 9(2), pages 1-23, January.

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