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Title: |
Limited Downside Risk in Portfolio Selection among U.S. and Pacific
Basin Equities |
| Author: |
Jansen, Dennis
W. |
| Author
Affiliation: |
TX A&M U and PERC |
| Source: |
International Economic Journal, Winter 2001, v. 15, no. 4, pp. 1-22 |
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Publication Date: |
Winter 2001 |
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Abstract: |
In this paper we demonstrate safety first
portfolio selection using extreme value theory. We show that Roy's
safety first criterion can be improved on by exploiting the fat tail
property of asset returns. Using daily data for a set of international
stock indices for the period 1986-May 2000, we calculate the so-called
tail indexes, which are accurate measures of the fat-tailedness of the
stock return distributions, and use these to calculate minimum threshold
return levels given very low exceedence probabilities for investors.
This example is but one way that the theory of extremes can be utilized
in economics and finance. |
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