Optimal Portfolio Allocation Under Higher Moments
Details
Serval ID
serval:BIB_C1AFE85BD94C
Type
Article: article from journal or magazin.
Collection
Publications
Institution
Title
Optimal Portfolio Allocation Under Higher Moments
Journal
European Financial Management
ISSN
1354-7798
Publication state
Published
Issued date
01/2006
Peer-reviewed
Oui
Volume
12
Number
1
Pages
29-55
Language
english
Abstract
We evaluate how departure from normality may affect the allocation of assets. A Taylor series expansion of the expected utility allows to focus on certain moments and to compute the optimal portfolio allocation numerically. A decisive advantage of this approach is that it remains operational even for a large number of assets. While the mean-variance criterion provides a good approximation of the expected utility maximization under moderate non-normality, it may be ineffective under large departure from normality. In such cases, the three-moment or four-moment optimization strategies may provide a good approximation of the expected utility.
Keywords
Asset allocation, Stock returns, Non-normality, Utility function
Web of science
Publisher's website
Create date
19/11/2007 10:46
Last modification date
20/08/2019 15:36