Title: Which risk-measure best represents return distributions with large deviations?

Authors: Harry M. Markowitz

Addresses: Harry Markowitz Company, 1010 Turquoise Street Suite 245, San Diego, CA 92109, USA

Abstract: This paper examines the ability of risk-return approximations - using variance, semivariance, MAD, VaR and CVaR as risk-measures - to approximate expected utility (for Bernoulli's logarithmic utility function) for historical return series including some with losses of 70%, 80% and even 90%.

Keywords: variance; semivariance; MAD; mean absolute deviation; VaR; CVaR; value at risk; conditional VAR; geometric mean; mean-variance approximations; risk measurement; risk-return approximations; return distributions.

DOI: 10.1504/IJPAM.2012.049213

International Journal of Portfolio Analysis and Management, 2012 Vol.1 No.2, pp.93 - 111

Published online: 23 Aug 2014 *

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