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Risk Measurement and Listed Property Trust Investment Strategies : Focusing on the Downside

Author/s: Vincent Peng

Date Published: 1/01/2005

Published in: Volume 11 - 2005 Issue 2 (pages 178 - 199)

Abstract

Measuring investment risk precisely is critical to investment strategies. In common practice, the most popular measure of risk is standard deviation. However, standard deviation makes no distinction between positive and negative deviations from the mean. Such risk measurement could lead to biased decision making, given that asset returns are generally not symmetrically distributed. In this paper, risk is confined to adverse outcomes that are measured by the negative semi-deviation. By examining Australian Listed Property Trusts (LPTs) for the period of 1985- 2004, this paper illustrates how the differentiation between risk (semi-deviation) and uncertainty (standard deviation) make significant differences in performance measurement and optimal portfolio construction. This paper demonstrates that the concept and application of downside risk is a valuable construct to LPT investment strategies.

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Keywords

Downside Risk - Investment Risk - Investment Strategies - Listed Property Trusts

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