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Can switching between risk measures lead to better portfolio optimization?

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  • Brianna Cain
  • Ralf Zurbruegg

    (Business School, University of Adelaide)

Abstract

This article proposes a technique that involves switching between risk measures in different market environments, to capture the well-documented dynamic nature of risk within a portfolio optimization setting. In-sample results show categorically that switching between various measures, such as CVaR, time-varying (GARCH) variances and simple standard deviations, can lead to a better performance than using any single measure. Using a logistic probability model to determine when to switch between alternatives, out-of -sample results also show positive results. Given that this study only applies a basic switching system, it lends itself to easy application by practitioners through its simplicity, intuitive appeal and computational feasibility.

Suggested Citation

  • Brianna Cain & Ralf Zurbruegg, 2010. "Can switching between risk measures lead to better portfolio optimization?," Journal of Asset Management, Palgrave Macmillan, vol. 10(6), pages 358-369, February.
    • Handle: RePEc:pal:assmgt:v:10:y:2010:i:6:d:10.1057_jam.2009.20
    DOI: 10.1057/jam.2009.20
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    Cited by:

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