Portfolio Selection with Hierarchical Isomorphic Risk Aversion

Researchers usually specify risk aversion coefficients from 1 (lowest) to M (highest) for a portfolio to indicate active or passive approaches. How effective is this practice? Recent studies suggest that the global minimum variance portfolio (GMVP) is statistically equivalent to portfolios with extensive risk aversion coefficients (the GMVP-equivalent). Expressing the risk aversion coefficient as a Taylor series of the target return and efficient set constants, we generalize the previous result to the non-GMVP-equivalents and segment mean-variance portfolios according to a hierarchy of risk aversion coefficients. In this paper, we show that hierarchical risk aversion coefficients are superior to isometric attributes.

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Publication Details

Journal
Mathematics
Published
2024-10-28
DOI
https://doi.org/10.3390/math12213375
Citations
1
Primary Topic
Risk and Portfolio Optimization
Type
article
Field-Weighted Citation Impact
0.49
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article

Portfolio Selection with Hierarchical Isomorphic Risk Aversion

Wan-Yi Chiu
1 citations
Mathematics
Risk and Portfolio Optimization
0.49
article

Portfolio Selection with Hierarchical Isomorphic Risk Aversion

Wan-Yi Chiu
article en
1 citations

Abstract

Researchers usually specify risk aversion coefficients from 1 (lowest) to M (highest) for a portfolio to indicate active or passive approaches. How effective is this practice? Recent studies suggest that the global minimum variance portfolio (GMVP) is statistically equivalent to portfolios with extensive risk aversion coefficients (the GMVP-equivalent). Expressing the risk aversion coefficient as a Taylor series of the target return and efficient set constants, we generalize the previous result to the non-GMVP-equivalents and segment mean-variance portfolios according to a hierarchy of risk aversion coefficients. In this paper, we show that hierarchical risk aversion coefficients are superior to isometric attributes.

MathematicsVol. 12(21)
National United University (TW)
Openalex Percentile: Top 30%
Risk and Portfolio Optimization
0.49
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