A Utility Theoretic Basis for 'Generalized' Mean-Coefficient of Variation (MCV) Analysis

Abstract

The coefficient of variation (CV) in investment returns is often presented in introductory finance texts as a measure of project risk [7, 9, 13, 15]. Curiously, the resulting mean-coefficient of variation (MCV) efficiency criterion is usually casually proposed as an alternative to the more widely recommended mean-standard deviation (MSD) definition of efficiency, as if MCV possessed an obvious intuitive appeal for some investors or some investment situations. The pervasiveness of references to CV as a risk measure is perplexing in light of the absence of utility theoretic underpinnings, especially by contrast with the substantial theoretical effort underlying the MSD notion of efficiency [3, 6, 8, 10, 11, 12].