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Computation of the Efficient Boundary in the E-S Portfolio Selection Model

Published online by Cambridge University Press:  19 October 2009

William W. Hogan  and
James M. Warren
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Extract

Portfolio selection models based on expected value-semivariance (E-S) criteria have been suggested as offering certain advantages over the expected value-variance (E-V) approach. Although variance is more tractable mathematically, it has not always been satisfying to financial theorists ([3, pp. 278–284], [5], [6], [7, pp. 193–194], and [10, pp. 72–73]). In the pioneering work in portfolio analysis, Markowitz [7, p. 194] observed that semivariance concentrates on reducing losses as opposed to variance which considers extreme gains, as well as extreme losses, as undesirable. In the presence of nonsymmetrical probability distributions, this equal weighting of gains and losses may not adequately describe the alternative portfolios available to the decision maker.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 7 , Issue 4 , September 1972 , pp. 1881 - 1896
Copyright
Copyright © School of Business Administration, University of Washington 1972

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