Convexity, two-fund separation and asset ranking in a mean-LPM portfolio selection framework
Abstract This paper addresses two most important problems of mean-lower partial moment (MLPM) portfolio selection theory, the convexity of efficient frontier and the availability of target returns that permit two-fund separation (TFS). The convexity of the efficient frontier is a very crucial proper...
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| Autor*in: |
Mondal, Dipankar [verfasserIn] |
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| Format: |
Artikel |
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| Sprache: |
Englisch |
| Erschienen: |
2021 |
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| Schlagwörter: |
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| Anmerkung: |
© The Author(s), under exclusive licence to Springer-Verlag GmbH Germany, part of Springer Nature 2021 |
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| Übergeordnetes Werk: |
Enthalten in: OR-Spektrum - Springer Berlin Heidelberg, 1999, 44(2021), 1 vom: 23. Okt., Seite 225-248 |
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| Übergeordnetes Werk: |
volume:44 ; year:2021 ; number:1 ; day:23 ; month:10 ; pages:225-248 |
| Links: |
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| DOI / URN: |
10.1007/s00291-021-00657-6 |
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OLC2078045535 |
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| 520 | |a Abstract This paper addresses two most important problems of mean-lower partial moment (MLPM) portfolio selection theory, the convexity of efficient frontier and the availability of target returns that permit two-fund separation (TFS). The convexity of the efficient frontier is a very crucial property as it guarantees the existence of various important results. However, in the MLPM framework, the convexity has not been analytically proved yet. In this paper, we provide an analytical proof for this convexity. On the other hand, in the MLPM framework, the separation is guaranteed for two specific targets—risk-free rate and mean return. The question of which other targets admit the separation has not been solved for the last three decades. As a result, non-separation occurs with the use of arbitrary targets and thereby several pitfalls arise in the MLPM portfolio optimization and asset ranking (Brogan and Stidham, Eur J Oper Res 184(2):701–710, 2008; Hoechner et al., Int Rev Finance 17(4):597–610, 2017). We solve this problem by showing the existence and uniqueness of a generalized family of target returns that guarantees the MLPM separation. The discovery of generalized target provides a sound theoretical foundation to use a modified version of Kappa ratio which, unlike the usual Kappa ratio, always satisfies the maximum principle and the invariance property (Pedersen and Satchell, Quant Finance 2(3):217–223, 2002; Zakamouline, Quant Finance 14(4):699–710, 2014). Finally, we conduct empirical experiments that illustrate our theoretical results and unfold some interesting facts. | ||
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10.1007/s00291-021-00657-6 doi (DE-627)OLC2078045535 (DE-He213)s00291-021-00657-6-p DE-627 ger DE-627 rakwb eng 650 VZ Mondal, Dipankar verfasserin (orcid)0000-0003-0673-9466 aut Convexity, two-fund separation and asset ranking in a mean-LPM portfolio selection framework 2021 Text txt rdacontent ohne Hilfsmittel zu benutzen n rdamedia Band nc rdacarrier © The Author(s), under exclusive licence to Springer-Verlag GmbH Germany, part of Springer Nature 2021 Abstract This paper addresses two most important problems of mean-lower partial moment (MLPM) portfolio selection theory, the convexity of efficient frontier and the availability of target returns that permit two-fund separation (TFS). The convexity of the efficient frontier is a very crucial property as it guarantees the existence of various important results. However, in the MLPM framework, the convexity has not been analytically proved yet. In this paper, we provide an analytical proof for this convexity. On the other hand, in the MLPM framework, the separation is guaranteed for two specific targets—risk-free rate and mean return. The question of which other targets admit the separation has not been solved for the last three decades. As a result, non-separation occurs with the use of arbitrary targets and thereby several pitfalls arise in the MLPM portfolio optimization and asset ranking (Brogan and Stidham, Eur J Oper Res 184(2):701–710, 2008; Hoechner et al., Int Rev Finance 17(4):597–610, 2017). We solve this problem by showing the existence and uniqueness of a generalized family of target returns that guarantees the MLPM separation. The discovery of generalized target provides a sound theoretical foundation to use a modified version of Kappa ratio which, unlike the usual Kappa ratio, always satisfies the maximum principle and the invariance property (Pedersen and Satchell, Quant Finance 2(3):217–223, 2002; Zakamouline, Quant Finance 14(4):699–710, 2014). Finally, we conduct empirical experiments that illustrate our theoretical results and unfold some interesting facts. Lower partial moment Convexity Separation Target return Kappa ratio Selvaraju, N. (orcid)0000-0002-7184-4193 aut Enthalten in OR-Spektrum Springer Berlin Heidelberg, 1999 44(2021), 1 vom: 23. Okt., Seite 225-248 (DE-627)266014410 (DE-600)1465994-3 (DE-576)07495959X 0171-6468 nnns volume:44 year:2021 number:1 day:23 month:10 pages:225-248 https://doi.org/10.1007/s00291-021-00657-6 lizenzpflichtig Volltext GBV_USEFLAG_A SYSFLAG_A GBV_OLC SSG-OLC-MAT SSG-OLC-WIW AR 44 2021 1 23 10 225-248 |
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10.1007/s00291-021-00657-6 doi (DE-627)OLC2078045535 (DE-He213)s00291-021-00657-6-p DE-627 ger DE-627 rakwb eng 650 VZ Mondal, Dipankar verfasserin (orcid)0000-0003-0673-9466 aut Convexity, two-fund separation and asset ranking in a mean-LPM portfolio selection framework 2021 Text txt rdacontent ohne Hilfsmittel zu benutzen n rdamedia Band nc rdacarrier © The Author(s), under exclusive licence to Springer-Verlag GmbH Germany, part of Springer Nature 2021 Abstract This paper addresses two most important problems of mean-lower partial moment (MLPM) portfolio selection theory, the convexity of efficient frontier and the availability of target returns that permit two-fund separation (TFS). The convexity of the efficient frontier is a very crucial property as it guarantees the existence of various important results. However, in the MLPM framework, the convexity has not been analytically proved yet. In this paper, we provide an analytical proof for this convexity. On the other hand, in the MLPM framework, the separation is guaranteed for two specific targets—risk-free rate and mean return. The question of which other targets admit the separation has not been solved for the last three decades. As a result, non-separation occurs with the use of arbitrary targets and thereby several pitfalls arise in the MLPM portfolio optimization and asset ranking (Brogan and Stidham, Eur J Oper Res 184(2):701–710, 2008; Hoechner et al., Int Rev Finance 17(4):597–610, 2017). We solve this problem by showing the existence and uniqueness of a generalized family of target returns that guarantees the MLPM separation. The discovery of generalized target provides a sound theoretical foundation to use a modified version of Kappa ratio which, unlike the usual Kappa ratio, always satisfies the maximum principle and the invariance property (Pedersen and Satchell, Quant Finance 2(3):217–223, 2002; Zakamouline, Quant Finance 14(4):699–710, 2014). Finally, we conduct empirical experiments that illustrate our theoretical results and unfold some interesting facts. Lower partial moment Convexity Separation Target return Kappa ratio Selvaraju, N. (orcid)0000-0002-7184-4193 aut Enthalten in OR-Spektrum Springer Berlin Heidelberg, 1999 44(2021), 1 vom: 23. Okt., Seite 225-248 (DE-627)266014410 (DE-600)1465994-3 (DE-576)07495959X 0171-6468 nnns volume:44 year:2021 number:1 day:23 month:10 pages:225-248 https://doi.org/10.1007/s00291-021-00657-6 lizenzpflichtig Volltext GBV_USEFLAG_A SYSFLAG_A GBV_OLC SSG-OLC-MAT SSG-OLC-WIW AR 44 2021 1 23 10 225-248 |
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10.1007/s00291-021-00657-6 doi (DE-627)OLC2078045535 (DE-He213)s00291-021-00657-6-p DE-627 ger DE-627 rakwb eng 650 VZ Mondal, Dipankar verfasserin (orcid)0000-0003-0673-9466 aut Convexity, two-fund separation and asset ranking in a mean-LPM portfolio selection framework 2021 Text txt rdacontent ohne Hilfsmittel zu benutzen n rdamedia Band nc rdacarrier © The Author(s), under exclusive licence to Springer-Verlag GmbH Germany, part of Springer Nature 2021 Abstract This paper addresses two most important problems of mean-lower partial moment (MLPM) portfolio selection theory, the convexity of efficient frontier and the availability of target returns that permit two-fund separation (TFS). The convexity of the efficient frontier is a very crucial property as it guarantees the existence of various important results. However, in the MLPM framework, the convexity has not been analytically proved yet. In this paper, we provide an analytical proof for this convexity. On the other hand, in the MLPM framework, the separation is guaranteed for two specific targets—risk-free rate and mean return. The question of which other targets admit the separation has not been solved for the last three decades. As a result, non-separation occurs with the use of arbitrary targets and thereby several pitfalls arise in the MLPM portfolio optimization and asset ranking (Brogan and Stidham, Eur J Oper Res 184(2):701–710, 2008; Hoechner et al., Int Rev Finance 17(4):597–610, 2017). We solve this problem by showing the existence and uniqueness of a generalized family of target returns that guarantees the MLPM separation. The discovery of generalized target provides a sound theoretical foundation to use a modified version of Kappa ratio which, unlike the usual Kappa ratio, always satisfies the maximum principle and the invariance property (Pedersen and Satchell, Quant Finance 2(3):217–223, 2002; Zakamouline, Quant Finance 14(4):699–710, 2014). Finally, we conduct empirical experiments that illustrate our theoretical results and unfold some interesting facts. Lower partial moment Convexity Separation Target return Kappa ratio Selvaraju, N. (orcid)0000-0002-7184-4193 aut Enthalten in OR-Spektrum Springer Berlin Heidelberg, 1999 44(2021), 1 vom: 23. Okt., Seite 225-248 (DE-627)266014410 (DE-600)1465994-3 (DE-576)07495959X 0171-6468 nnns volume:44 year:2021 number:1 day:23 month:10 pages:225-248 https://doi.org/10.1007/s00291-021-00657-6 lizenzpflichtig Volltext GBV_USEFLAG_A SYSFLAG_A GBV_OLC SSG-OLC-MAT SSG-OLC-WIW AR 44 2021 1 23 10 225-248 |
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10.1007/s00291-021-00657-6 doi (DE-627)OLC2078045535 (DE-He213)s00291-021-00657-6-p DE-627 ger DE-627 rakwb eng 650 VZ Mondal, Dipankar verfasserin (orcid)0000-0003-0673-9466 aut Convexity, two-fund separation and asset ranking in a mean-LPM portfolio selection framework 2021 Text txt rdacontent ohne Hilfsmittel zu benutzen n rdamedia Band nc rdacarrier © The Author(s), under exclusive licence to Springer-Verlag GmbH Germany, part of Springer Nature 2021 Abstract This paper addresses two most important problems of mean-lower partial moment (MLPM) portfolio selection theory, the convexity of efficient frontier and the availability of target returns that permit two-fund separation (TFS). The convexity of the efficient frontier is a very crucial property as it guarantees the existence of various important results. However, in the MLPM framework, the convexity has not been analytically proved yet. In this paper, we provide an analytical proof for this convexity. On the other hand, in the MLPM framework, the separation is guaranteed for two specific targets—risk-free rate and mean return. The question of which other targets admit the separation has not been solved for the last three decades. As a result, non-separation occurs with the use of arbitrary targets and thereby several pitfalls arise in the MLPM portfolio optimization and asset ranking (Brogan and Stidham, Eur J Oper Res 184(2):701–710, 2008; Hoechner et al., Int Rev Finance 17(4):597–610, 2017). We solve this problem by showing the existence and uniqueness of a generalized family of target returns that guarantees the MLPM separation. The discovery of generalized target provides a sound theoretical foundation to use a modified version of Kappa ratio which, unlike the usual Kappa ratio, always satisfies the maximum principle and the invariance property (Pedersen and Satchell, Quant Finance 2(3):217–223, 2002; Zakamouline, Quant Finance 14(4):699–710, 2014). Finally, we conduct empirical experiments that illustrate our theoretical results and unfold some interesting facts. Lower partial moment Convexity Separation Target return Kappa ratio Selvaraju, N. (orcid)0000-0002-7184-4193 aut Enthalten in OR-Spektrum Springer Berlin Heidelberg, 1999 44(2021), 1 vom: 23. Okt., Seite 225-248 (DE-627)266014410 (DE-600)1465994-3 (DE-576)07495959X 0171-6468 nnns volume:44 year:2021 number:1 day:23 month:10 pages:225-248 https://doi.org/10.1007/s00291-021-00657-6 lizenzpflichtig Volltext GBV_USEFLAG_A SYSFLAG_A GBV_OLC SSG-OLC-MAT SSG-OLC-WIW AR 44 2021 1 23 10 225-248 |
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10.1007/s00291-021-00657-6 doi (DE-627)OLC2078045535 (DE-He213)s00291-021-00657-6-p DE-627 ger DE-627 rakwb eng 650 VZ Mondal, Dipankar verfasserin (orcid)0000-0003-0673-9466 aut Convexity, two-fund separation and asset ranking in a mean-LPM portfolio selection framework 2021 Text txt rdacontent ohne Hilfsmittel zu benutzen n rdamedia Band nc rdacarrier © The Author(s), under exclusive licence to Springer-Verlag GmbH Germany, part of Springer Nature 2021 Abstract This paper addresses two most important problems of mean-lower partial moment (MLPM) portfolio selection theory, the convexity of efficient frontier and the availability of target returns that permit two-fund separation (TFS). The convexity of the efficient frontier is a very crucial property as it guarantees the existence of various important results. However, in the MLPM framework, the convexity has not been analytically proved yet. In this paper, we provide an analytical proof for this convexity. On the other hand, in the MLPM framework, the separation is guaranteed for two specific targets—risk-free rate and mean return. The question of which other targets admit the separation has not been solved for the last three decades. As a result, non-separation occurs with the use of arbitrary targets and thereby several pitfalls arise in the MLPM portfolio optimization and asset ranking (Brogan and Stidham, Eur J Oper Res 184(2):701–710, 2008; Hoechner et al., Int Rev Finance 17(4):597–610, 2017). We solve this problem by showing the existence and uniqueness of a generalized family of target returns that guarantees the MLPM separation. The discovery of generalized target provides a sound theoretical foundation to use a modified version of Kappa ratio which, unlike the usual Kappa ratio, always satisfies the maximum principle and the invariance property (Pedersen and Satchell, Quant Finance 2(3):217–223, 2002; Zakamouline, Quant Finance 14(4):699–710, 2014). Finally, we conduct empirical experiments that illustrate our theoretical results and unfold some interesting facts. Lower partial moment Convexity Separation Target return Kappa ratio Selvaraju, N. (orcid)0000-0002-7184-4193 aut Enthalten in OR-Spektrum Springer Berlin Heidelberg, 1999 44(2021), 1 vom: 23. Okt., Seite 225-248 (DE-627)266014410 (DE-600)1465994-3 (DE-576)07495959X 0171-6468 nnns volume:44 year:2021 number:1 day:23 month:10 pages:225-248 https://doi.org/10.1007/s00291-021-00657-6 lizenzpflichtig Volltext GBV_USEFLAG_A SYSFLAG_A GBV_OLC SSG-OLC-MAT SSG-OLC-WIW AR 44 2021 1 23 10 225-248 |
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Mondal, Dipankar Selvaraju, N. |
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Mondal, Dipankar |
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10.1007/s00291-021-00657-6 |
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convexity, two-fund separation and asset ranking in a mean-lpm portfolio selection framework |
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Convexity, two-fund separation and asset ranking in a mean-LPM portfolio selection framework |
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Abstract This paper addresses two most important problems of mean-lower partial moment (MLPM) portfolio selection theory, the convexity of efficient frontier and the availability of target returns that permit two-fund separation (TFS). The convexity of the efficient frontier is a very crucial property as it guarantees the existence of various important results. However, in the MLPM framework, the convexity has not been analytically proved yet. In this paper, we provide an analytical proof for this convexity. On the other hand, in the MLPM framework, the separation is guaranteed for two specific targets—risk-free rate and mean return. The question of which other targets admit the separation has not been solved for the last three decades. As a result, non-separation occurs with the use of arbitrary targets and thereby several pitfalls arise in the MLPM portfolio optimization and asset ranking (Brogan and Stidham, Eur J Oper Res 184(2):701–710, 2008; Hoechner et al., Int Rev Finance 17(4):597–610, 2017). We solve this problem by showing the existence and uniqueness of a generalized family of target returns that guarantees the MLPM separation. The discovery of generalized target provides a sound theoretical foundation to use a modified version of Kappa ratio which, unlike the usual Kappa ratio, always satisfies the maximum principle and the invariance property (Pedersen and Satchell, Quant Finance 2(3):217–223, 2002; Zakamouline, Quant Finance 14(4):699–710, 2014). Finally, we conduct empirical experiments that illustrate our theoretical results and unfold some interesting facts. © The Author(s), under exclusive licence to Springer-Verlag GmbH Germany, part of Springer Nature 2021 |
| abstractGer |
Abstract This paper addresses two most important problems of mean-lower partial moment (MLPM) portfolio selection theory, the convexity of efficient frontier and the availability of target returns that permit two-fund separation (TFS). The convexity of the efficient frontier is a very crucial property as it guarantees the existence of various important results. However, in the MLPM framework, the convexity has not been analytically proved yet. In this paper, we provide an analytical proof for this convexity. On the other hand, in the MLPM framework, the separation is guaranteed for two specific targets—risk-free rate and mean return. The question of which other targets admit the separation has not been solved for the last three decades. As a result, non-separation occurs with the use of arbitrary targets and thereby several pitfalls arise in the MLPM portfolio optimization and asset ranking (Brogan and Stidham, Eur J Oper Res 184(2):701–710, 2008; Hoechner et al., Int Rev Finance 17(4):597–610, 2017). We solve this problem by showing the existence and uniqueness of a generalized family of target returns that guarantees the MLPM separation. The discovery of generalized target provides a sound theoretical foundation to use a modified version of Kappa ratio which, unlike the usual Kappa ratio, always satisfies the maximum principle and the invariance property (Pedersen and Satchell, Quant Finance 2(3):217–223, 2002; Zakamouline, Quant Finance 14(4):699–710, 2014). Finally, we conduct empirical experiments that illustrate our theoretical results and unfold some interesting facts. © The Author(s), under exclusive licence to Springer-Verlag GmbH Germany, part of Springer Nature 2021 |
| abstract_unstemmed |
Abstract This paper addresses two most important problems of mean-lower partial moment (MLPM) portfolio selection theory, the convexity of efficient frontier and the availability of target returns that permit two-fund separation (TFS). The convexity of the efficient frontier is a very crucial property as it guarantees the existence of various important results. However, in the MLPM framework, the convexity has not been analytically proved yet. In this paper, we provide an analytical proof for this convexity. On the other hand, in the MLPM framework, the separation is guaranteed for two specific targets—risk-free rate and mean return. The question of which other targets admit the separation has not been solved for the last three decades. As a result, non-separation occurs with the use of arbitrary targets and thereby several pitfalls arise in the MLPM portfolio optimization and asset ranking (Brogan and Stidham, Eur J Oper Res 184(2):701–710, 2008; Hoechner et al., Int Rev Finance 17(4):597–610, 2017). We solve this problem by showing the existence and uniqueness of a generalized family of target returns that guarantees the MLPM separation. The discovery of generalized target provides a sound theoretical foundation to use a modified version of Kappa ratio which, unlike the usual Kappa ratio, always satisfies the maximum principle and the invariance property (Pedersen and Satchell, Quant Finance 2(3):217–223, 2002; Zakamouline, Quant Finance 14(4):699–710, 2014). Finally, we conduct empirical experiments that illustrate our theoretical results and unfold some interesting facts. © The Author(s), under exclusive licence to Springer-Verlag GmbH Germany, part of Springer Nature 2021 |
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Convexity, two-fund separation and asset ranking in a mean-LPM portfolio selection framework |
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