Ruilin Tian, Fariz Huseynov, and David Zhang have had their paper, entitled "Downside Risk Control and Optimal Investment Turnover around Financial Crises " accepted for publication in the International Journal of Portfolio Analysis and Management (IJPAM). IJPAM establishes an international state-of-the-art knowledge platform in the field of portfolio management (PM) and thoroughly captures all underlying research developments.
This paper is a collaborative work in the area of international portfolio management.
This paper investigates tactical investment strategies for investors to survive financial crises. Compared with the buy-and-hold strategy, the buy-and-sell strategy is much more effective in mitigating downside risk before, during, and after a crisis by restricting the left-tail volatility of portfolio returns through CVaR constraints. The paper also studies investors’ optimal turnovers around a crisis under the buy-and-hold strategy. Considering investors’ heterogeneous behaviors, we find the wealth-weighted average optimal turnover across all investors during a crisis is much higher than that before or after the crisis. This indicates investors who enter the market before a crisis may be better off by leaving their portfolios untouched during the market downturn. In addition, the downside risk control model can detect a market downturn earlier than the mean-variance model, therefore it helps to “spread out” the required asset adjustments over a longer horizon than the crisis period itself.