Fundamental Portfolio Construction Based on Semi-Variance

• Authors: Rutkowska-Ziarko Anna
• Languages of publication: EN

Abstracts

EN

In models for creating a fundamental portfolio, based on the classical Markowitz model, the variance is usually used as a risk measure. However, equal treatment of negative and positive deviations from the expected rate of return is a slight shortcoming of variance as the risk measure. Markowitz defined semi-variance to measure the negative deviations only. However, finding the fundamental portfolio with minimum semi-variance is not possible with the existing methods.The aim of the article is to propose and verify a method which allows to find a fundamental portfolio with the minimum semi-variance. A synthetic indicator is constructed for each company, describing its economic and financial situation. The method of constructing fundamental portfolios using semi-variance as the risk measure is presented. The differences between the semi-variance fundamental portfolios and variance fundamental portfolios are analysed on example of companies listed on the Warsaw Stock Exchange.

Keywords

EN

Markowitz model; fundamental portfolio; semi-variance; Mahalanobis distance

• Publisher: Uniwersytet Warmińsko-Mazurski w Olsztynie
• Journal: Olsztyn Economic Journal
• Year: 2013
• Volume: 8
• Issue: 2
• Pages: 151-162

Dates

published

2013-06-30

Contributors

author

Rutkowska-Ziarko Anna

• Department of Quantitative Methods, University of Warmia and Mazury in Olsztyn

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