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COMMENT ON “SKEWNESS‐AWARE ASSET ALLOCATION”
Author(s) -
Bae Kwangil
Publication year - 2014
Publication title -
mathematical finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.98
H-Index - 81
eISSN - 1467-9965
pISSN - 0960-1627
DOI - 10.1111/mafi.12040
Subject(s) - skewness , variance (accounting) , econometrics , downside risk , measure (data warehouse) , asset allocation , risk measure , standard deviation , asset (computer security) , computer science , economics , mathematics , statistics , financial economics , data mining , portfolio , accounting , computer security
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.