Portfolio selection: An extreme value approach
We show theoretically that lower tail dependence (χ), a measure of the probability that a portfolio will suffer large losses given that the market does, contains important information for risk-averse investors. We then estimate χ for a sample of DJIA stocks and show that it differs systematically fr...
| Main Authors: | , |
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| Format: | Journal article |
| Language: | English |
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Elsevier
2012
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| _version_ | 1797083743858458624 |
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| author | DiTraglia, FJ Gerlach, JR |
| author_facet | DiTraglia, FJ Gerlach, JR |
| author_sort | DiTraglia, FJ |
| collection | OXFORD |
| description | We show theoretically that lower tail dependence (χ), a measure of the probability that a portfolio will suffer large losses given that the market does, contains important information for risk-averse investors. We then estimate χ for a sample of DJIA stocks and show that it differs systematically from other risk measures including variance, semi-variance, skewness, kurtosis, beta, and coskewness. In out-of-sample tests, portfolios constructed to have low values of χ outperform the market index, the mean return of the stocks in our sample, and portfolios with high values of χ. Our results indicate that χ is conceptually important for risk-averse investors, differs substantially from other risk measures, and provides useful information for portfolio selection. |
| first_indexed | 2024-03-07T01:45:46Z |
| format | Journal article |
| id | oxford-uuid:985f07a4-fa7d-42e7-b2e4-86e6ebb0dca5 |
| institution | University of Oxford |
| language | English |
| last_indexed | 2024-03-07T01:45:46Z |
| publishDate | 2012 |
| publisher | Elsevier |
| record_format | dspace |
| spelling | oxford-uuid:985f07a4-fa7d-42e7-b2e4-86e6ebb0dca52022-03-27T00:06:26ZPortfolio selection: An extreme value approachJournal articlehttp://purl.org/coar/resource_type/c_dcae04bcuuid:985f07a4-fa7d-42e7-b2e4-86e6ebb0dca5EnglishSymplectic ElementsElsevier2012DiTraglia, FJGerlach, JRWe show theoretically that lower tail dependence (χ), a measure of the probability that a portfolio will suffer large losses given that the market does, contains important information for risk-averse investors. We then estimate χ for a sample of DJIA stocks and show that it differs systematically from other risk measures including variance, semi-variance, skewness, kurtosis, beta, and coskewness. In out-of-sample tests, portfolios constructed to have low values of χ outperform the market index, the mean return of the stocks in our sample, and portfolios with high values of χ. Our results indicate that χ is conceptually important for risk-averse investors, differs substantially from other risk measures, and provides useful information for portfolio selection. |
| spellingShingle | DiTraglia, FJ Gerlach, JR Portfolio selection: An extreme value approach |
| title | Portfolio selection: An extreme value approach |
| title_full | Portfolio selection: An extreme value approach |
| title_fullStr | Portfolio selection: An extreme value approach |
| title_full_unstemmed | Portfolio selection: An extreme value approach |
| title_short | Portfolio selection: An extreme value approach |
| title_sort | portfolio selection an extreme value approach |
| work_keys_str_mv | AT ditragliafj portfolioselectionanextremevalueapproach AT gerlachjr portfolioselectionanextremevalueapproach |