Finding a maximum skewness portfolio—a general solution to three-moments portfolio choice
✍ Scribed by Gustavo M. de Athayde; Renato G. Flôres Jr.
- Publisher
- Elsevier Science
- Year
- 2004
- Tongue
- English
- Weight
- 382 KB
- Volume
- 28
- Category
- Article
- ISSN
- 0165-1889
No coin nor oath required. For personal study only.
✦ Synopsis
Considering the three ÿrst moments and allowing short sales, the e cient portfolios set for n risky assets and a riskless one is found, supposing that agents like odd moments and dislike even ones. Analytical formulas for the solution surface are obtained and important geometric properties provide insights on its shape in the three-dimensional space deÿned by the moments. A special duality result is needed and proved. The methodology is general, comprising situations in which, for instance, the investor trades a negative skewness for a higher expected return. Computation of the optimum portfolio weights is feasible in most cases.