PORTFOLIO SELECTION PROBLEMS CONSISTENT WITH GIVEN PREFERENCE ORDERINGS

Sergio Ortobelli Lozza (), Haim Shalit and Frank Fabozzi ()
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Sergio Ortobelli Lozza: Department SAEMQ, University of Bergamo, 24127 - Via dei Caniana 2, Bergamo, Italy;

International Journal of Theoretical and Applied Finance (IJTAF), 2013, vol. 16, issue 05, 1-38

Abstract: This paper theoretically and empirically investigates the connection between portfolio theory and ordering theory. In particular, we examine three different portfolio problems and the respective orderings used to rank investors' choices: (1) risk orderings, (2) variability orderings, and (3) tracking-error orderings. For each problem, we discuss the properties of the risk measures, variability measures, and tracking-error measures, as well as their consistency with investor choices. Finally, for each problem, we propose an empirical application of several admissible portfolio optimization problems using the US stock market. The proposed empirical analysis permits us to evaluate the ex-post impact of the optimal choices, thereby deriving completely different investors' preference orderings during the recent financial crisis.

Keywords: Probability metrics; tracking-error measures; stochastic orderings; coherent measures; linearizable optimization problems; behavioral finance ordering (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (10)

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DOI: 10.1142/S0219024913500295

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