Abstract
Assuming that a portfolio manager selects a portfolio by maximizing the returnto‐risk ratios of the securities that constitute the portfolio, the performance of this “heuristic” is sensitive to the choice of risk measure in the return‐to‐risk ratio. Using sixty month holding periods and second degree stochastic dominance to evaluate the performance of the portfolio selection heuristic; the mean absolute deviation, beta and target semivariance were found to be superior to the variance and the mean semivariance. In addition, the heuristic with the superior risk measures provided performance comparable to the optimal single index model.
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