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

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ID: 267362
2020
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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.
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Authors Ahmed Imran Hunjra;Suha Mahmoud Alawi;Sisira Colombage;Uroosa Sahito;Mahnoor Hanif;Hunjra, Ahmed Imran;Alawi, Suha Mahmoud;Colombage, Sisira;Sahito, Uroosa;Hanif, Mahnoor;
Journal risks
Year 2020
DOI
10.3390/risks8040126
URL
https://www.mdpi.com/2227-9091/8/4/126
Keywords
stock market conditional value at risk mean variance semi variance mean absolute deviations portfolio construction

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