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A Utility Theoretic Basis for “Generalized” Mean-Coefficient of Variation (MCV) Analysis

Published online by Cambridge University Press:  06 April 2009

Ronald E. Shrieves  and
John M. Wachowicz Jr
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Extract

The coefficient of variation (CV) in investment returns is often presented in introductory finance texts as a measure of project risk [7, 9, 13, 15]. Curiously, the resulting mean-coefficient of variation (MCV) efficiency criterion is usually casually proposed as an alternative to the more widely recommended mean-standard deviation (MSD) definition of efficiency, as if MCV possessed an obvious intuitive appeal for some investors or some investment situations. The pervasiveness of references to CV as a risk measure is perplexing in light of the absence of utility theoretic underpinnings, especially by contrast with the substantial theoretical effort underlying the MSD notion of efficiency [3, 6, 8, 10, 11, 12].

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 16 , Issue 5 , December 1981 , pp. 671 - 683
Copyright
Copyright © School of Business Administration, University of Washington 1981

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References

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