TY - JOUR
T1 - Portfolio selection problems consistent with given preference orderings
AU - Lozza, Sergio Ortobelli
AU - Shalit, Haim
AU - Fabozzi, Frank J.
N1 - Funding Information:
We thank the two anonymous referees for their comments and helpful suggestions that improved the paper greatly. Sergio Ortobelli acknowledges the MIUR PRIN MISURA Project, 2013–2015, for financial support as well as grants from the University of Bergamo 2011, 2013.
PY - 2013/8/1
Y1 - 2013/8/1
N2 - 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.
AB - 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.
KW - Probability metrics
KW - behavioral finance ordering
KW - coherent measures
KW - linearizable optimization problems
KW - stochastic orderings
KW - tracking-error measures
UR - http://www.scopus.com/inward/record.url?scp=84880986902&partnerID=8YFLogxK
U2 - 10.1142/S0219024913500295
DO - 10.1142/S0219024913500295
M3 - Article
AN - SCOPUS:84880986902
SN - 0219-0249
VL - 16
JO - International Journal of Theoretical and Applied Finance
JF - International Journal of Theoretical and Applied Finance
IS - 5
M1 - 1350029
ER -
