Multicriteria Portfolio Choice and Downside Risk

Anna Rutkowska-Ziarko () and Pawel Kliber
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Anna Rutkowska-Ziarko: Faculty of Economics, University of Warmia and Mazury in Olsztyn, 10-719 Olsztyn, Poland
Pawel Kliber: Institute of Informatics and Quantitative Economics, Poznan University of Economics and Business, 61-875 Poznań, Poland

JRFM, 2023, vol. 16, issue 8, 1-16

Abstract: In this study, we investigated some extensions of the classical portfolio theory and try to evaluate them in a situation of crisis. We studied some additional criteria for portfolio selection, based on market multiples representing the overall situation of companies. Additionally, we investigated semi-variance as an alternative measure of risk. We developed a range of portfolios that were built using different criteria for risk and the fundamental values of companies from the Polish stock market. Then, we compared their returns during the crisis that occurred after the outbreak of the COVID-19 pandemic. The results of empirical research on the major companies traded on the Warsaw Stock Exchange reveal that investors can achieve better investment results by augmenting the standard Markowitz model with an additional criterion connected with the fundamental standing of companies, such as book-to-market or earnings-to-market ratios. The second result is that using nonclassical risk measures such as semi-variance instead of variance provides better results, and this method of measuring risk is especially essential in periods characterized by the collapse of the capital market.

Keywords: portfolio analysis; fundamental value; multicriterial choice; market multiple; downside risk (search for similar items in EconPapers)
JEL-codes: C E F2 F3 G (search for similar items in EconPapers)
Date: 2023
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