Valuation, Downside Risk Measures and Asymmetric Information: A Portfolio Optimization Approach
International Journal of Economics, Finance and Management Sciences
Volume 2, Issue 6, December 2014, Pages: 319-331
Received: Feb. 16, 2014; Accepted: Apr. 25, 2014; Published: Dec. 5, 2014
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Yoram Kroll, Ono Academic College-Ono, Israel and Ruppin Academic Center- Hemek Hefer, Israel
Moshe Ben-Horin, Ono Academic College-Ono, Israel
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This paper proposed optimal equilibrium portfolio algorithm for valuing assets. When mean variance criterion is assumed, the proposed procedure and the conventional CAPM yield identical valuations. When a downside risk measures are employed and the distributions are asymmetric, the proposed algorithm and the three moments extensions of CAPM may yield close, but not necessarily identical, valuations. Our semi-variance results are identical to those of Bawa& Lindenberg, but in contrast to those of Estrada's downside risk extension of CAPM. The impact on valuation of "Mean Variance Preserving Shifts" and asymmetrical information regarding future cash flows are demonstrated by the proposed model.
Cash Flow Valuation, Semi-Variance, VaR, AVaR, DCF, Asymmetric Information, Stochastic Dominance
To cite this article
Yoram Kroll, Moshe Ben-Horin, Valuation, Downside Risk Measures and Asymmetric Information: A Portfolio Optimization Approach, International Journal of Economics, Finance and Management Sciences. Vol. 2, No. 6, 2014, pp. 319-331. doi: 10.11648/j.ijefm.20140206.14
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