What risks are associated with payday loans
The statistical properties of bond returns do not correspond with one of the basic assumptions of modern portfolio theory. As indicated by the descriptive statistics the empirical distributions of bond returns significantly deviate from a normal distribution. Keeping in mind this deficiency we nevertheless provide the results of the classical mean–variance framework as a benchmark in the empirical part of this chapter. As an alternative, two techniques are introduced that explicitly take account of skewness and kurtosis during the process of portfolio construction.
Downside risk measures apply to the intuitive understanding of risk of most investors. They associate risk with below-target returns. Typical targets are “preservation of nominal or real capital invested”. By utilizing below-target returns, lower partial moments are measuring the amount of negative skewness of an empirical distribution.
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