Asset allocation in the Brazilian stock market according to the downside risk strategy

  • Fabio Wendling Muniz de Andrade Universidade São Marcos
Keywords: Downside Risk, Asset Allocation, Semi-variance, Efficient Frontier, Portfolio Optimization

Abstract

The traditional mean-variance approach for building efficient portfolios was compared to the downside risk approach that substitutes variance of returns by semi-variance or another lower partial momentum of returns. Empirical investigation searched for efficient frontiers using both approaches and strategies for asset allocation which were simulated for comparison. The downside risk approach was shown to be superior in terms of efficiency when investors had asymmetric preferences related to risk. Further the strategy of minimizing downside risk effectively provided greater protection against losses when compared to the strategy of variance minimization, for asset allocation.

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Published
2006-06-01
How to Cite
Andrade, F. (2006). Asset allocation in the Brazilian stock market according to the downside risk strategy . REGE Revista De Gestão, 13(2), 27-36. https://doi.org/10.5700/issn.2177-8736.rege.2006.36556
Section
Finanças