The Algebra of Financial Asymmetry: A Schematic Approach to Semideviation and Semivariance

18 Pages Posted: 19 Jan 2015  

James Ming Chen

Michigan State University - College of Law

Date Written: January 18, 2015

Abstract

Modern portfolio theory remains the dominant paradigm of financial risk management. Behavioral economics, however, targets one of modern portfolio theory’s greatest pitfalls: its symmetrical view of all deviations from expected return, positive or negative, as if investors viewed excess returns to be as troubling as failures to meet a targeted level of returns. This article evaluates a range of measures designed to gauge financial risk through semideviation or semivariance: the Sortino ratio, Morningside's upside and downside capture ratios, and the omega and kappa measures.

Suggested Citation

Chen, James Ming, The Algebra of Financial Asymmetry: A Schematic Approach to Semideviation and Semivariance (January 18, 2015). Available at SSRN: https://ssrn.com/abstract=2551401 or http://dx.doi.org/10.2139/ssrn.2551401

James Ming Chen (Contact Author)

Michigan State University - College of Law ( email )

318 Law College Building
East Lansing, MI 48824-1300
United States

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