Application of the Down-Side Risk in the Investment Portfolio Management

Authors:

Pages: 99-105

Abstract:

The paper aims to present empirically the characteristics of portfolio management through the techniques of the Post-Modern Portfolio Theory and more accurately the usage of down-side risk measures for the valuation and generation of investment alternatives. Additionally we examine the results generated by the relatively new coherent risk measure EVaR (entropic value at risk). We generate investment alternatives on with the aid of an etalon and the base is the index STOXX 50 Europe. We rebalance the weights of the assets included in the index in retrospection. For every quarter we correct the weights based on the data before the current (past) moment and analyze the data for the following moments. The time horizon of the test is three years (august 2016 – august 2019), and one year of prior information. From the analysis we determine that the usage of Sortion coefficient allows us to maximize the returns with relatively low increment of the risk measures (in other words improving the risk-return characteristics of the portfolio). Simultaneously, the usage of VaR and its verity allows of investment alternatives with defensive purposes, limiting the variation and potential losses. Also the relatively best results and reached with the usage of EVaR – with lowest variation and reasonable return.

Keywords:

investment portfolio, Post-Modern Portfolio Theory, down-side risk measure, VaR.

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