Study of portfolio optimization based on downside risk, upside potential and behavioral variables efficiency

Subject Areas : Financial engineering

yavar mirabbasi ¹ , hashem nikoumaram ² , ali Saeidi ³ , Farideh Haghshenas ⁴

1 - دانشجوی دکتری مدیریت مالی، واحد علوم و تحقیقات، دانشگاه آزاد اسلامی، تهران، ایران
2 - گروه مدیریت مالی، واحد علوم و تحقیقات تهران، دانشگاه آزاد اسلامی، تهران، ایران
3 - Faculty Member, Department of Financial Management, Islamic Azad University, Northern tehran Branch, Tehran, Iran
4 - Faculty Member, Department of Financial Management, Islamic Azad University, central tehran Branch, Tehran, Iran

Received: 2017-05-06 Accepted : 2017-09-20 Published : 2018-03-21

Keywords: Portfolio, Downside risk, Upside potential, upside potential adjusted portfolio optimization,

Abstract :

While available models to measure the risk don’t consider the positive side of stock return probability distribution, this research tries to optimize the portfolio based on adjusted lower partial momentum (ALPM) with upside potential and behavioral variables to compare the result with modern portfolio theory model which is one of the basic models in this area. This research studies 144 monthly portfolios of industry indices in Tehran Stock Exchange within 12 years and compute realized rate of return for those portfolios in next month. In the next stage the research make use of variance analysis between realized rates of return for portfolios made by two models. The present research determined that realized rate of return for portfolios made by ALPM are higher than modern portfolio theory model when investors are downside risk averse and upside potential lover. However in condition that investors are downside risk averse and upside potential averse there is not any difference between two model as well as when investors are downside risk averse and upside potential neutral.