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Controlling risk through diversification in portfolio selection with non-historical information

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  • C. Calvo
  • C. Ivorra
  • V. Liern

Abstract

We deal with the portfolio selection problem for investors having information on the expected returns of the assets based not only on historical data. In the absence of a way of measuring the risk of non-historical information, the investor may try to adjust it through the consideration of a suitable set of diversification constraints. With this aim, we relate the concept of value of information (recently introduced by Kao and Steuer) to a qualitative subjective measure of the investor’s level of confidence in his/her non-historical information. As an illustration, we analyze the behavior of the proposed indicator in the Spanish IBEX35 index for risk, upper bound, semicontinuous variable and cardinality constraints.

Suggested Citation

  • C. Calvo & C. Ivorra & V. Liern, 2018. "Controlling risk through diversification in portfolio selection with non-historical information," Journal of the Operational Research Society, Taylor & Francis Journals, vol. 69(10), pages 1543-1548, October.
    • Handle: RePEc:taf:tjorxx:v:69:y:2018:i:10:p:1543-1548
    DOI: 10.1057/s41274-017-0195-6
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