Template-type: ReDIF-Paper 1.0
Author-Name: David E. Allen
Author-Workplace-Name: School of Mathematics and Statistics, the University of Sydney, and Center for Applied Financial Studies, 
	University of South Australia.
Author-Name: Michael McAleer
Author-Workplace-Name: Department of Quantitative Finance National Tsing Hua University, Taiwan.
Author-Name: Robert J. Powell
Author-Workplace-Name:
 School of Accounting, Finance and Economics, Edith Cowan University, Australia.
Author-Name: Abhay K. Singh
Author-Workplace-Name:
 School of Accounting, Finance and Economics, Edith Cowan University, Australia.
Title: Down-side Risk Metrics as Portfolio Diversification Strategies across the GFC
Abstract: This paper features an analysis of the effectiveness of a range of portfolio diversification strategies, with a focus on 
	down-side risk metrics, as a portfolio diversification strategy in a European market context. We apply these measures to a set 
	of daily arithmetically compounded returns on a set of ten market indices representing the major European markets for a nine 
	year period from the beginning of 2005 to the end of 2013. The sample period, which incorporates the periods of both the 
	Global Financial Crisis (GFC) and subsequent European Debt Crisis (EDC), is challenging one for the application of portfolio 
	investment strategies. The analysis is undertaken via the examination of multiple investment strategies and a variety of 
	hold-out periods and back-tests. We commence by using four two year estimation periods and subsequent one year investment hold 
	out period, to analyse a naive 1/N diversification strategy, and to contrast its effectiveness with Markowitz mean variance 
	analysis with positive weights. Markowitz optimisation is then compared with various downside investment optimisation 
	strategies. We begin by comparing Markowitz with CVaR, and then proceed to evaluate the relative effectiveness of Markowitz 
	with various draw-down strategies, utilising a series of backtests. Our results suggest that none of the more sophisticated 
	optimisation strategies appear to dominate naive diversification.
Classification-JEL: G11, C61.
Keywords: Portfolio Diversification, Markowitz Analaysis, Downside Risk, CVaR, Draw-down.

Length: 21 pages 
Creation-Date: 2015-11
Number: 2015-19
X-File-Ref: http://america.sim.ucm.es/repec/ucm/ref/doicae1519.txt
File-URL: https://eprints.ucm.es/id/eprint/34144/1/1519.pdf
File-Format: Application/pdf
Handle: RePEc:ucm:doicae:1519