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Risk Decomposition: Variance or Standard Deviation—A Reexamination and Extension

Published online by Cambridge University Press:  06 April 2009

Tony van Zijl
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Abstract

This paper reexamines and extends the work of Ben Horim and Levy [1], which argued that risk decomposition should be based on standard deviation rather than on variance. Their analysis showed that decomposition of variance is wrong when β < 0 and that, in general, this procedure produces incorrect estimates of undiversifiable risk. This paper shows that these conclusions also apply to the no-risk-free asset extended CAPM if risk is adjusted for the unavoidable risk associated with the global minimum variance portfolio.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 22 , Issue 2 , June 1987 , pp. 237 - 247
Copyright
Copyright © School of Business Administration, University of Washington 1987

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References

REFERENCES

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