Robust analysis for downside risk in portfolio management for a volatile stock market

Usman Ayub, Syed Zulfiqar Ali Shah, Qaisar Abbas

Research output: Contribution to journalArticlepeer-review

16 Citations (Scopus)

Abstract

Variance and downside risk are different proxies of risk in portfolio management. This study tests mean-variance and downside risk frameworks in relation to portfolio management. The sample is a highly volatile market; Karachi Stock Exchange, Pakistan. Factors affecting portfolio optimization like appropriate portfolio size, portfolio sorting procedure, butterfly effect on the choice of appropriate algorithms and endogeneity problem are discussed and solutions to them are incorporated to make the study robust. Results show that downside risk framework performs better than Markowitz mean-variance framework. Moreover, this difference is significant when the asset returns are more skewed. Results suggest the use of downside risk in place of variance as a measure of risk for investment decisions.

Original languageEnglish
Pages (from-to)86-96
Number of pages11
JournalEconomic Modelling
Volume44
Early online date31 Oct 2014
DOIs
Publication statusPublished - 1 Jan 2015
Externally publishedYes

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