Conditional Value-at-Risk, spectral risk measures and (non-)diversification in portfolio selection problems – A comparison with mean–variance analysis
Journal of Banking & Finance, 2013, vol. 37, issue 12, 5526-5537
We study portfolio selection under Conditional Value-at-Risk and, as its natural extension, spectral risk measures, and compare it with traditional mean–variance analysis. Unlike the previous literature that considers an investor’s mean-spectral risk preferences for the choice of optimal portfolios only implicitly, we explicitly model these preferences in the form of a so-called spectral utility function. Within this more general framework, spectral risk measures tend towards corner solutions. If a risk free asset exists, diversification is never optimal. Similarly, without a risk free asset, only limited diversification is obtained. The reason is that spectral risk measures are based on a regulatory concept of diversification that differs fundamentally from the reward-risk tradeoff underlying the mean–variance framework.
Keywords: Portfolio selection; Spectral risk measures; Conditional Value-at-Risk; Comonotonicity; Efficient frontier; Optimal portfolio (search for similar items in EconPapers)
JEL-codes: G11 G21 D81 (search for similar items in EconPapers)
References: View references in EconPapers View complete reference list from CitEc
Citations View citations in EconPapers (8) Track citations by RSS feed
Downloads: (external link)
Full text for ScienceDirect subscribers only
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:37:y:2013:i:12:p:5526-5537
Access Statistics for this article
Journal of Banking & Finance is currently edited by Ike Mathur
More articles in Journal of Banking & Finance from Elsevier
Series data maintained by Dana Niculescu ().