Portfolio selection using the Riskiness Index

Doron Nisani

Studies in Economics and Finance, 2018, vol. 35, issue 2, 330-339

Abstract: Purpose - The purpose of this paper is to increase the accuracy of the efficient portfolios frontier and the capital market line using the Riskiness Index. Design/methodology/approach - This paper will develop the mean-riskiness model for portfolio selection using the Riskiness Index. Findings - This paper’s main result is establishing a mean-riskiness efficient set of portfolios. In addition, the paper presents two applications for the mean-riskiness portfolio management method: one that is based on the multi-normal distribution (which is identical to the MV model optimal portfolio) and one that is based on the multi-normal inverse Gaussian distribution (which increases the portfolio’s accuracy, as it includes the a-symmetry and tail-heaviness features in addition to the scale and diversification features of the MV model). Research limitations/implications - The Riskiness Index is not a coherent measurement of financial risk, and the mean-riskiness model application is based on a high-order approximation to the portfolio’s rate of return distribution. Originality/value - The mean-riskiness model increases portfolio management accuracy using the Riskiness Index. As the approximation order increases, the portfolio’s accuracy increases as well. This result can lead to a more efficient asset allocation in the capital markets.

Keywords: Asset allocation; Risk management; Portfolio selection; Riskiness index; G11; G14; G32 (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eme:sefpps:sef-03-2017-0058

DOI: 10.1108/SEF-03-2017-0058

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