It is common wisdom that the 9/11 terrorist attacks boosted political and financial uncertainty and resulted in severe stock market meltdowns in the months after the attacks. Taking a sectoral focus of the market for US common stock, we apply statistical extreme value analysis (EVT) to assess whether downside risk measures like Value-at-Risk (VaR) and extremal sector linkages were significantly...

CAN THE NORMALITY OF THE SEMI VARIANCE BE IMPROVED? EVIDENCE FROM FINANCIAL STOCK INDEXES WITH HOURLY, DAILY, QUARTERLY AND ANNUAL DATA OF DJIA AND SP500 ELDOMIATY, Tarek Ibrahim Abstract This study examines the financial and statistical properties of the variance and semi variance (SV). Since the mean-variance approach and its extended mean-semi variance approach assume normality of returns, i...

We consider portfolio allocation in which the underlying investment instruments are hedge funds. We consider a family of utility functions involving the probability of outperforming a benchmark and expected regret relative to another benchmark. Non-normal return vectors with prescribed marginal distributions and correlation structure are modeled and simulated using the normal-to-anything method...

We develop an optimization method for constructing investment portfolios that dominate a given benchmark portfolio in terms of third-degree stochastic dominance. Our approach relies on the properties of the semivariance function, a refinement of an existing ‘super-convex’ dominance condition and quadratic constrained programming. We apply our method to historical stock market data using an indu...

The downside risk CAPM (DR-CAPM) can price the cross section of currency returns. The market-beta differential between high and low interest rate currencies is higher conditional on bad market returns, when the market price of risk is also high, than it is conditional on good market returns. Correctly accounting for this variation is crucial for the empirical performance of the model. The DR-CA...

Constraints on downside risk, measured by shortfall probability, expected shortfall, semi-variance etc., lead to optimal asset allocations which differ from the meanvariance optimum. The resulting optimization problem can become quite complex as it exhibits multiple local extrema and discontinuities, in particular if we also introduce constraints restricting the trading variables to integers, c...