Department of Business Administration2024-11-0920100270-259210.1111/j.1475-6803.2009.01263.x2-s2.0-77952528970https://dx.doi.org/10.1111/j.1475-6803.2009.01263.xhttps://hdl.handle.net/20.500.14288/6528We propose a new approach to optimal portfolio selection in a downside risk framework that allocates assets by maximizing expected return subject to a shortfall probability constraint, reflecting the typical desire of a risk-averse investor to limit the maximum likely loss. Our empirical results indicate that the loss-averse portfolio outperforms the widely used mean-variance approach based on the cumulative cash values, geometric mean returns, and average risk-adjusted returns. We also evaluate the relative performance of the loss-averse portfolio with normal, symmetric thin-tailed, symmetric fat-tailed, and skewed fat-tailed return distributions in terms of average return, risk, and average risk-adjusted return.Business administrationJournal Article1475-6803https://www.scopus.com/inward/record.uri?eid=2-s2.0-77952528970anddoi=10.1111%2fj.1475-6803.2009.01263.xandpartnerID=40andmd5=cfe3cd304b0da6e36bd07230fd6f1bb2Q210815