Abstract
The mean-variance framework for portfolio selection should be revised when investor’s concern is the downside risk. This is especially true when the asset returns are not normal. In this paper, we incorporate value-at-risk (VaR) in portfolio selection and the mean-VaR framework is proposed. Due to the twoobjective optimization problem faced by the meanVaR framework, an evolutionary multi-objective approach is applied to construct the mean-VaR efficient frontier. In particular, the NSGA-II is considered here. From the empirical analysis it is found that the risk-averse investor might inefficiently allocate his wealth if his decision is based on the mean-variance framework.
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