Downside loss aversion and portfolio management

• 成果类型: Article
• 署名作者: Jarrow, R; Zhao, F
• 署名单位: Cornell University; Rutgers University System; Rutgers University Newark; Rutgers University New Brunswick
• 刊物名称: MANAGEMENT SCIENCE
• ISSN/ISSBN: 0025-1909
• DOI: 10.1287/mnsc.1050.0486
• 发表日期: 2006
• 页码: 558-566
• 关键词: Downside risk; loss aversion; Portfolio management; lower partial moments; heavy-tail distributions

摘要

Downside loss-averse preferences have seen a resurgence in the portfolio management literature. This is due to the increasing use of derivatives in managing equity portfolios and the increased use of quantitative techniques for bond portfolio management. We employ the lower partial moment as a risk measure for downside loss aversion and compare mean-variance (M-V) and mean-lower partial moment (M-LPM) optimal portfolios under nonnormal asset return distributions. When asset returns are nearly normally distributed, there is little difference between the optimal M-V and M-LPM portfolios. When asset returns are nonnormal with large left tails, we document significant differences in M-V and M-LPM optimal portfolios. This observation is consistent with industry usage of M-V theory for equity portfolios but not for fixed-income portfolios.