Portfolio Construction by Using Different Risk Models: A Comparison among Diverse Economic Scenarios

Abstract

We aim to construct portfolios by employing different risk models and compare their performance in order to understand their appropriateness for effective portfolio management for investors. Mean variance (MV), semi variance (SV), mean absolute deviation (MaD) and conditional value at risk (CVaR) are considered as risk measures. The price data were extracted from the Pakistan stock exchange, Bombay stock exchange and Dhaka stock exchange under diverse economic conditions such as crisis, recovery and growth. We take the average of GDP of the selected period of each country as a cut-off point to make three economic scenarios. We use 40 stocks from the Pakistan stock exchange, 92 stocks from the Bombay stock exchange and 30 stocks from the Dhaka stock exchange. We compute optimal weights using global minimum variance portfolio (GMVP) for all stocks to construct optimal portfolios and analyze the data by using MV, SV, MaD and CVaR models for each subperiod. We find that CVaR (95%) gives better results in each scenario for all three countries and performance of portfolios is inconsistent in different scenarios.

Optimization and Diversification of Cryptocurrency Portfolios: A Composite Copula-Based Approach

“…In this paper, we chose the conditional value at risk (CVaR) as risk measure and follow Rockafellar and Uryasev [22] optimisation approach for problem (7).…”

“…Javed et al [4], Khan et al [5] as well as Jurczenko et al [6] proposed the analysis based on moments of higher orders. Hunjra et al [7], Krokhmal et al [8] as well as Agrawal and Naik [9] construct optimal portfolios using alternative risk measures. All these methods have shown their performance compared to the results given through classical analysis.…”

Global Sensitivity Analysis of Quantiles: New Importance Measure Based on Superquantiles and Subquantiles

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A multi-objective approach based on Markowitz and DEA cross-efficiency models for the intuitionistic fuzzy portfolio selection problem

“…Zhao (2018) utilized the Markowitz model to select options for the stock market. Hunjra et al (2020) compared the performance of risk models (mean-variance, semi-variance, mean absolute deviation, and conditional value-at-risk) in different economic scenarios, namely crisis, recovery, and growth. They implemented their investigations on the stock exchange of Pakistan, Bombay, and Dhaka.…”