On the Use and Misuse of Downside Risk

Abstract

94132). W hen the first article on downside risk , was published (see Sortino and ' ' Hopelain [1980]), there were no applications of downside risk in the investment community. .Now, agrowing number of practitioners are using downside risk in various portfolio managementapplications. We want to ,support this movement, but we would like to call attention to some critical problems that we find in our continued research on the subject. Balzer [1994] and Harlow [1991] have examined various ways to conceptualize 'downside risk. Both conclude that deviations below some set value that must be ,'.. . earned at a minimumIn order to prevent bad outcomes are preferred to.downside probability or shortfall risk. We concur with this finding and will focus here on the problems atteA4an~ to estimating and calculating downside deviation'(DD)':m: asset allocation and performance measurement applic~tions. For the remainder of the article, downsiderisk Will be synonymous with DO.

Cite this work

No public copy is stored for this record, so only the metadata is cited.

Stored only when both papers are in the corpus — 137 citations exist upstream.