Minimizing Shortfall

Minimizing Shortfall

Quantitative Finance, iFirst, 1-13, 2012 This paper describes an empirical study of shortfall optimization with Barra Extreme Risk. We compare minimum shortfall to minimum variance portfolios in the US, UK, and Japanese equity markets using Barra Style Factors (Value, Growth, Momentum, etc.). We sho...

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Bibliographic Details
Main Authors: Goldberg, Lisa R, Hayes, Michael Y, Mahmoud, Ola
Format: Journal Article
Language:English
Published: 04-02-2011
Subjects:
Quantitative Finance - Portfolio Management
Quantitative Finance - Risk Management
Online Access:Get full text
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Summary:Quantitative Finance, iFirst, 1-13, 2012 This paper describes an empirical study of shortfall optimization with Barra Extreme Risk. We compare minimum shortfall to minimum variance portfolios in the US, UK, and Japanese equity markets using Barra Style Factors (Value, Growth, Momentum, etc.). We show that minimizing shortfall generally improves performance over minimizing variance, especially during down-markets, over the period 1985-2010. The outperformance of shortfall is due to intuitive tilts towards protective factors like Value, and away from aggressive factors like Growth and Momentum. The outperformance is largest for the shortfall that measures overall asymmetry rather than the extreme losses.
DOI:10.48550/arxiv.1102.0938