Constraining Shortfall, April 2010

14 Pages Posted: 12 May 2010

See all articles by Jennifer Bender

Jennifer Bender

State Street Global Advisors

Jyh-Huei Lee

MSCI Inc.

Dan Stefek

MSCI Inc.

Date Written: April 15, 2010

Abstract

In this study, our goal is to adapt mean-variance optimization to produce active portfolios with less exposure to extreme losses than normal optimized portfolios. Specifically, we illustrate how extreme risk can be incorporated into portfolio construction in a straightforward way by constraining the shortfall beta of the optimal portfolio. Our simple empirical examples suggest that constraining shortfall beta may offer some downside protection in turbulent periods without sacrificing performance over longer periods

Keywords: constraining shortfall, mean-variance, optimization, portfolios extreme losses, less exposure risk, portfolio construction shortfall, beta optimal protection

Suggested Citation

Bender, Jennifer and Lee, Jyh-Huei and Stefek, Dan, Constraining Shortfall, April 2010 (April 15, 2010). MSCI Barra Research Paper No. 2010-15, Available at SSRN: https://ssrn.com/abstract=1601941 or http://dx.doi.org/10.2139/ssrn.1601941

Jennifer Bender (Contact Author)

State Street Global Advisors ( email )

1 Lincoln Street
28th Floor
Boston, MA 02111
United States

Jyh-Huei Lee

MSCI Inc. ( email )

88 Pine Street
2nd Floor
New York, NY 10005
United States

Dan Stefek

MSCI Inc. ( email )

88 Pine Street
2nd Floor
New York, NY 10005
United States

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
236
Abstract Views
1,248
Rank
237,334
PlumX Metrics