COMMENT ON "SKEWNESS‐AWARE ASSET ALLOCATION". (6th June 2013)

• Record Type: Journal Article
• Authors: Bae, Kwangil
• Is Part Of: Mathematical finance. Volume 24:Number 2(2014:Apr.)
• Page Start: 403
• Page End: 410
• Publication Date: 2013-06-06
• Subjects: Business mathematics -- Periodicals; 332
• DOI: 10.1111/mafi.12040
• Languages: English
• ISSNs: 0960-1627

Abstract

<abstract abstract-type="main"> <title> <x xml:space="preserve">Abstract</x> </title> <p>This paper discusses risk measures proposed by Low et al. One of their new risk measures is skewness‐aware deviation, which is closely related to constant absolute risk aversion utility functions. This measure captures downside risk more effectively than traditional variance does. The authors also propose a second measure, skewness‐aware variance, which is derived from skewness‐aware deviation. This measure simplifies asset allocation problems and empirical results indicate that it captures risk better than traditional variance. However, this measure is also found to be inconsistent due to factor selection. Additionally, in the aspect of skewness‐aware deviation, optimal portfolios based upon skewness‐aware variance are sometimes less efficient than optimal portfolios that base themselves on traditional variance.</p> </abstract>