European Finance Review · 2014 · 84 citations · 36 references
BusinessFinanceFinancial ManagementFinancial EconomicsInvestment ManagementPortfolio ManagementAsset AllocationPortfolio AnalyticsPortfolio SelectionPortfolio TheoryRisk AversionStochastic DominanceInvestment Performance EvaluationMinimum Variance Portfolio SelectionOptimal Portfolio ChoicePortfolio Choice TheoryPortfolio Selection Under Stochastic DominanceSecond-order Stochastic DominanceStochastic Dominance AnalysisStochastic Dominance Rules
Abstract Constructing portfolios based on second-order stochastic dominance (SSD) is theoretically attractive since all risk-averse investors would prefer a dominating portfolio. However, choosing among SSD efficient portfolios is a challenge without an obvious ranking metric. We explore particular choices based on Kuosmanen (2004) plus Kopa and Post (2011), comparing their performance to other SSD-related strategies and to standard portfolio choice approaches. These SSD-related choices outperform portfolios chosen based on their Sharpe ratio, information ratio, or using equal weights. Portfolios based on minimum variance that also match the benchmark’s mean return perform on a par with the SSD-related choices.
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The Markowitz Optimization Enigma: Is ‘Optimized’ Optimal?
Richard O. Michaud · Financial Analysts Journal · 1989 · 1.3K citations