Mean-Semivariance Behavior: A Note

Posted: 6 Jun 2003

Abstract

The most widely-used measure of an asset's risk, beta, stems from an equilibrium in which investors display mean-variance behavior. This criterion assumes that portfolio risk is measured by the variance (or standard deviation) of returns. However, the semivariance is a more plausible measure of risk (as Markowitz himself admits) and is backed by theoretical, empirical, and practical considerations. It can also be used to implement an alternative behavioral criterion, mean-semivariance behavior, that is almost perfectly correlated to expected utility and to the utility of mean compound return.

Keywords: Expected utility, Downside risk, Semideviation, Mean-Variance Behavior

JEL Classification: G14, G15

Suggested Citation

Estrada, Javier, Mean-Semivariance Behavior: A Note. Available at SSRN: https://ssrn.com/abstract=412582

Javier Estrada (Contact Author)

IESE Business School ( email )

IESE Business School
Av. Pearson 21
Barcelona, 08034
Spain
+34 93 253 4200 (Phone)
+34 93 253 4343 (Fax)

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