Portfolio selection with limited downside risk

D.W. Jansen, K.G. Koedijk, C.G. De Vries

Research output: Contribution to JournalArticleAcademicpeer-review

Abstract

A safety-first investor maximizes expected return subject to a downside risk constraint. Arzac and Bawa [Arzac, E.R., Bawa, V.S., 1977. Portfolio choice and equilibrium in capital markets with safety-first investors. Journal of Financial Economics 4, 277-288.] use the Value at Risk as the downside risk measure. The paper by Gourieroux, Laurent and Scaillet estimates the optimal safety-first portfolio by a kernel-based method, we exploit the fact that returns are fat-tailed, and propose a semi-parametric method for modeling tail events. We also analyze a portfolio containing the two stocks used by Gourieroux et al. and discuss the merits of the safety-first approach. © 2000 Elsevier Science B.V.
Original languageEnglish
Pages (from-to)247-269
JournalJournal of Empirical Finance
Volume7
Issue number3-4
DOIs
Publication statusPublished - 2000
Externally publishedYes

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