An Asset Allocation Model Based on a Semi Variance Adjusted Sharpe Ratio

11 Pages Posted: 23 Aug 2009

See all articles by Riccardo Bramante

Riccardo Bramante

Laboratory of Statistics

Giampaolo Gabbi

SDA Bocconi School of Management

Date Written: August 22, 2009

Abstract

In asset allocation processes the estimation of standard deviations is often measured with error. As a result, the risk adjusted return ratios will be subject to estimation error. Since risk estimation is crucial in investment decisions, several risk measures have been suggested to take into consideration that risk changes through time. The choice of different risk measures can considerably change asset allocation decisions in the way in which assets are ranked on the basis of their risk-return profile. This paper is concerned with how to construct optimal portfolios that adapt quickly to changes in risk using a time varying asset allocation model based on a modified Sharpe Ratio measure.

Keywords: Asset allocation, semivariance, Sharpe ratio, portfolio optimization

JEL Classification: C13, G11

Suggested Citation

Bramante, Riccardo and Gabbi, Giampaolo, An Asset Allocation Model Based on a Semi Variance Adjusted Sharpe Ratio (August 22, 2009). Available at SSRN: https://ssrn.com/abstract=1459634 or http://dx.doi.org/10.2139/ssrn.1459634

Riccardo Bramante

Laboratory of Statistics ( email )

Via Necchi 9
Milano, MI 20121
Italy

Giampaolo Gabbi (Contact Author)

SDA Bocconi School of Management ( email )

Via Bocconi 8
Milan, Milan 20136
Italy

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