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Type: Journal article
Title: Can switching between risk measures lead to better portfolio optimization?
Author: Cain, B.
Zurbrugg, R.
Citation: The Journal of Asset Management, 2010; 10(6):358-369
Publisher: Palgrave Macmillan Ltd.
Issue Date: 2010
ISSN: 1470-8272
Statement of
Brianna Cain and Ralf Zurbruegg
Abstract: This article proposes a technique that involves switching between risk measures in different market environments, to capture the well-documented dynamic nature of risk within a portfolio optimization setting. In-sample results show categorically that switching between various measures, such as CVaR, time-varying (GARCH) variances and simple standard deviations, can lead to a better performance than using any single measure. Using a logistic probability model to determine when to switch between alternatives, out-of -sample results also show positive results. Given that this study only applies a basic switching system, it lends itself to easy application by practitioners through its simplicity, intuitive appeal and computational feasibility.
Keywords: volatility; variance; CvaR; GARCH; model switching; portfolio allocation
Rights: © 2010 Macmillan Publishers Ltd.
RMID: 0020100162
DOI: 10.1057/jam.2009.20
Published version:
Appears in Collections:Business School publications

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