Risk-Reward Ratio Optimisation (Revisited)

15 Pages Posted: 28 May 2017 Last revised: 9 Jan 2018

See all articles by Manfred Gilli

Manfred Gilli

University of Geneva - Research Center for Statistics; Swiss Finance Institute

Enrico Schumann

Independent

Date Written: October 28, 2017

Abstract

We study the empirical performance of alternative risk and reward specifications in portfolio selection. In particular, we look at models that take into account asymmetry of returns, and treat losses and gains differently. In tests on a dataset of German equities we find that portfolios constructed with the help of such models generally outperform the market index and in many cases also the risk-based benchmark (minimum variance). In part, higher returns can be explained by exposure to factors such as momentum and value. Nevertheless, a substantial part of the performance cannot be explained by standard asset-pricing models.

Keywords: Numerical optimisation; Heuristics; Risk-based investing; Downside risk; Factor Investing; UCITS

Suggested Citation

Gilli, Manfred and Schumann, Enrico, Risk-Reward Ratio Optimisation (Revisited) (October 28, 2017). Swiss Finance Institute Research Paper No. 17-55. Available at SSRN: https://ssrn.com/abstract=2975529 or http://dx.doi.org/10.2139/ssrn.2975529

Manfred Gilli

University of Geneva - Research Center for Statistics ( email )

Geneva
Switzerland
+41223798222 (Phone)
+41223798299 (Fax)

HOME PAGE: http://www.unige.ch/ses/metri/gilli/

Swiss Finance Institute ( email )

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

Enrico Schumann (Contact Author)

Independent ( email )

No Address Available

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