|dc.description.abstract||The purpose of this study is to obtain an effective solution to the portfolio selection problem,
for different risk measures. There is a trade-off between risk and return. We want to
determine how an investor should invest an amount of money, in a number of funds, in terms
of specific risk-reward objectives. That is, to maximise return for a given risk level or to
minimise risk for a given expected return level.
An important element of effectively managing risk is the ability to measure it with relative
precision. One of the most common ways to describe investment risk is to relate it to the
uncertainty or volatility of returns from an investment over time. For example, an investment
whose returns range between 0 and 2 percent is less volatile than an investment whose
returns range between -10 and 12 percent (Clark, 1994:45). Because risk is therefore
important, the literature review presents an overview of risk and risk management. This
includes the following: sources of investment risk, investment risk classifications, different risk
measures, the risk management process and strategies for risk management.
In order to find the optimal or best strategy, different investment strategies are compared over
different time horizons (comparison is done by using some risk measures, which are
minimised, as criteria for selecting the best strategy. The investment strategies that are used
include: models for decision making under uncertainty and decision making under risk. The
empirical results of both these approaches are presented in this study.
The optimal strategy was the half yearly pessimistic Hurwicz criterion strategy and for the
individual funds, S³,. The investor doesn't always have to select the optimal strategy, but he
can also select a good model. Thus, a strategy that has a slightly lower return, but it also
shows lower risk.||