The Portfolio Performance of Mean Lower Partial Moment Model-In Comparison with Mean Variance Model

• Main Authors: Yi-Ling Chen, 陳怡伶
• Other Authors: Yi-Nung Yang
• Format: Others
• Language: zh-TW
• Published: 2002
• Online Access: http://ndltd.ncl.edu.tw/handle/60339629291376271336

碩士 === 中原大學 === 國際貿易研究所 === 90 === Abstract In the traditional portfolio theory, the investment risk is measured by the variance. But based on this method, an increase and a decrease in prices of financial asset are treated the same. However, the risk that investor really want to avoid is that the price of assets decrease. Due to the above reason, Bawa and Lindenberg (1977) and Fishburn (1977) develop a theory to evaluate the downside risk named “Mean Lower-Partial-Moment” (MLPM) which is derived from the concept of the Lower Partial Moment. (LPM) The main subject of this paper is to find out the optimal portfolio by the comparison and analysis of the portfolio risk measured by LPM and the portfolio risk measured by variance. In these several years, the financial markets become more diversified. One of the popular financial assets is stock market. In this paper, we will analyze the value at risk (VaR), returns, Sharpe index, Treynor index, and R/SV index of the two kinds of portfolios by simulating different historic estimation periods, different holding periods and different market timing. And the portfolios will consist of the eight sub-categories of Taiwan’s stock market index. According to the results from this study, generally, the performance of MLPM model is better than mean-variance (MV) model, no matter what kind of different historic periods, different holding periods, or different market timing. Because MLPM only considers the lost on value of the portfolio as a risk, therefore, it is reasonable for investors to select portfolio according to the theory of MLPM if they invest in Taiwan’s stock market.