Advanced Search
MyIDEAS: Login to save this article or follow this journal

Portfolio selection in multidimensional general and partial moment space

Contents:

Author Info

  • Briec, Walter
  • Kerstens, Kristiaan

Abstract

This paper develops a general approach for the single period portfolio optimization problem in a multidimensional general and partial moment space. A shortage function is defined that looks for possible increases in odd moments and decreases in even moments. A main result is that this shortage function ensures sufficient conditions for global optimality. It also forms a natural basis for developing tests on the influence of additional moments. Furthermore, a link is made with an approximation of an arbitrary order of a general indirect utility function. This non-parametric efficiency measurement framework permits to differentiate mainly between portfolio efficiency and allocative efficiency. Finally, information can, in principle, be inferred about the revealed risk aversion, prudence, temperance and other higher-order risk characteristics of investors.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.sciencedirect.com/science/article/B6V85-4XNF3X4-1/2/957d035368b81e93ae4578101d9f1499
Download Restriction: Full text for ScienceDirect subscribers only

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Bibliographic Info

Article provided by Elsevier in its journal Journal of Economic Dynamics and Control.

Volume (Year): 34 (2010)
Issue (Month): 4 (April)
Pages: 636-656

as in new window
Handle: RePEc:eee:dyncon:v:34:y:2010:i:4:p:636-656

Contact details of provider:
Web page: http://www.elsevier.com/locate/jedc

Related research

Keywords: Shortage function Efficient frontier K-moment portfolios;

Other versions of this item:

Find related papers by JEL classification:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Bawa, Vijay S., 1975. "Optimal rules for ordering uncertain prospects," Journal of Financial Economics, Elsevier, vol. 2(1), pages 95-121, March.
  2. Kim, Tae-Hwan & White, Halbert, 2004. "On more robust estimation of skewness and kurtosis," Finance Research Letters, Elsevier, vol. 1(1), pages 56-73, March.
  3. Vinod, H. D., 2004. "Ranking mutual funds using unconventional utility theory and stochastic dominance," Journal of Empirical Finance, Elsevier, vol. 11(3), pages 353-377, June.
  4. X. Henry Wang & Carmen F. Menezes, 2004. "Increasing Outer Risk," Working Papers 0413, Department of Economics, University of Missouri, revised 23 Dec 2004.
  5. Zenios, Stavros A. & Holmer, Martin R. & McKendall, Raymond & Vassiadou-Zeniou, Christiana, 1998. "Dynamic models for fixed-income portfolio management under uncertainty," Journal of Economic Dynamics and Control, Elsevier, vol. 22(10), pages 1517-1541, August.
  6. Varian, Hal R., 1983. "Nonparametric Tests of Models of Investor Behavior," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 18(03), pages 269-278, September.
  7. Walter Briec & Kristiaan Kerstens & Octave Jokung, 2005. "Mean-Variance-Skewness Portfolio Performance Gauging: A General Shortage Function and Dual Approach," Working Papers 2005-ECO-05, IESEG School of Management.
  8. Louis Eeckhoudt & Harris Schlesinger, 2006. "Putting Risk in Its Proper Place," American Economic Review, American Economic Association, vol. 96(1), pages 280-289, March.
  9. Timo Kuosmanen, 2004. "Efficient Diversification According to Stochastic Dominance Criteria," Management Science, INFORMS, vol. 50(10), pages 1390-1406, October.
  10. Jondeau, E. & Rockinger, M., 2004. "Optimal Portfolio Allocation Under Higher Moments," Working papers 108, Banque de France.
  11. Kahneman, Daniel & Tversky, Amos, 1979. "Prospect Theory: An Analysis of Decision under Risk," Econometrica, Econometric Society, vol. 47(2), pages 263-91, March.
  12. Emmanuel Jurczenko & Bertrand Maillet & Paul Merlin, 2008. "Efficient Frontier for Robust Higher-order Moment Portfolio Selection," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00336475, HAL.
  13. Joseph Golec & Maurry Tamarkin, 1998. "Bettors Love Skewness, Not Risk, at the Horse Track," Journal of Political Economy, University of Chicago Press, vol. 106(1), pages 205-225, February.
  14. Scott, Robert C & Horvath, Philip A, 1980. " On the Direction of Preference for Moments of Higher Order Than the Variance," Journal of Finance, American Finance Association, vol. 35(4), pages 915-19, September.
  15. DACHRAOUI, Kaïs & DIONNE, Georges & EECKHOUDT, Louis & GODFROID, Philippe, . "Comparative mixed risk aversion: definition and application to self-protection and willingness to pay," CORE Discussion Papers RP -1835, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  16. Fishburn, Peter C, 1977. "Mean-Risk Analysis with Risk Associated with Below-Target Returns," American Economic Review, American Economic Association, vol. 67(2), pages 116-26, March.
  17. Jondeau, Eric & Rockinger, Michael, 2003. "Conditional volatility, skewness, and kurtosis: existence, persistence, and comovements," Journal of Economic Dynamics and Control, Elsevier, vol. 27(10), pages 1699-1737, August.
  18. Subodh Kumar & R. Robert Russell, 2002. "Technological Change, Technological Catch-up, and Capital Deepening: Relative Contributions to Growth and Convergence," American Economic Review, American Economic Association, vol. 92(3), pages 527-548, June.
  19. Tehranian, Hassan, 1980. " Empirical Studies in Portfolio Performance Using Higher Degrees of Stochastic Dominance," Journal of Finance, American Finance Association, vol. 35(1), pages 159-71, March.
  20. Leopold Simar & Paul Wilson, 2000. "A general methodology for bootstrapping in non-parametric frontier models," Journal of Applied Statistics, Taylor & Francis Journals, vol. 27(6), pages 779-802.
  21. Chellathurai, Thamayanthi & Draviam, Thangaraj, 2007. "Dynamic portfolio selection with fixed and/or proportional transaction costs using non-singular stochastic optimal control theory," Journal of Economic Dynamics and Control, Elsevier, vol. 31(7), pages 2168-2195, July.
  22. Patrick L. Brockett & Yehuda Kahane, 1992. "Risk, Return, Skewness and Preference," Management Science, INFORMS, vol. 38(6), pages 851-866, June.
  23. Gul, Faruk, 1991. "A Theory of Disappointment Aversion," Econometrica, Econometric Society, vol. 59(3), pages 667-86, May.
  24. Patrick L. Brockett & Linda L. Golden, 1987. "A Class of Utility Functions Containing all the Common Utility Functions," Management Science, INFORMS, vol. 33(8), pages 955-964, August.
  25. Varian, Hal R., 1990. "Goodness-of-fit in optimizing models," Journal of Econometrics, Elsevier, vol. 46(1-2), pages 125-140.
  26. Louis Eeckhoudt & Béatrice Rey & Harris Schlesinger, 2006. "A Good Sign for Multivariate Risk Taking," CESifo Working Paper Series 1796, CESifo Group Munich.
  27. Markowitz, Harry M, 1991. " Foundations of Portfolio Theory," Journal of Finance, American Finance Association, vol. 46(2), pages 469-77, June.
  28. Caballe, Jordi & Pomansky, Alexey, 1996. "Mixed Risk Aversion," Journal of Economic Theory, Elsevier, vol. 71(2), pages 485-513, November.
  29. Campbell R. Harvey & Akhtar Siddique, 2000. "Conditional Skewness in Asset Pricing Tests," Journal of Finance, American Finance Association, vol. 55(3), pages 1263-1295, 06.
  30. Gourieroux, C. & Monfort, A., 2005. "The econometrics of efficient portfolios," Journal of Empirical Finance, Elsevier, vol. 12(1), pages 1-41, January.
  31. Miles S. Kimball, 1989. "Precautionary Saving in the Small and in the Large," NBER Working Papers 2848, National Bureau of Economic Research, Inc.
  32. Fare, Rolf & Grosskopf, Shawna, 1995. "Nonparametric tests of regularity, Farrell efficiency, and goodness-of-fit," Journal of Econometrics, Elsevier, vol. 69(2), pages 415-425, October.
  33. Samuelson, Paul A., 1967. "General Proof that Diversification Pays," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 2(01), pages 1-13, March.
  34. Donald E. Farrar, 1962. "The Investment Decision Under Uncertainty: Portfolio Selection," Journal of Finance, American Finance Association, vol. 17(4), pages 671-672, December.
  35. Harlow, W. V. & Rao, Ramesh K. S., 1989. "Asset Pricing in a Generalized Mean-Lower Partial Moment Framework: Theory and Evidence," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 24(03), pages 285-311, September.
  36. Harry Markowitz, 1952. "Portfolio Selection," Journal of Finance, American Finance Association, vol. 7(1), pages 77-91, 03.
  37. Walter Briec & Kristiaan Kerstens, 2008. "Infeasibility and Directional Distance Functions with Application to the Determinateness of the Luenberger Productivity Indicator," Working Papers 2008-ECO-11, IESEG School of Management.
  38. Loistl, Otto, 1976. "The Erroneous Approximation of Expected Utility by Means of a Taylor's Series Expansion: Analytic and Computational Results," American Economic Review, American Economic Association, vol. 66(5), pages 904-10, December.
  39. Cornes,Richard, 1992. "Duality and Modern Economics," Cambridge Books, Cambridge University Press, number 9780521336017.
  40. Gibbons, Michael R & Ross, Stephen A & Shanken, Jay, 1989. "A Test of the Efficiency of a Given Portfolio," Econometrica, Econometric Society, vol. 57(5), pages 1121-52, September.
  41. Robert F. Dittmar, 2002. "Nonlinear Pricing Kernels, Kurtosis Preference, and Evidence from the Cross Section of Equity Returns," Journal of Finance, American Finance Association, vol. 57(1), pages 369-403, 02.
  42. Samuelson, Paul A, 1970. "The Fundamental Approximation Theorem of Portfolio Analysis in terms of Means, Variances, and Higher Moments," Review of Economic Studies, Wiley Blackwell, vol. 37(4), pages 537-42, October.
  43. Thistle, Paul D., 1993. "Negative Moments, Risk Aversion, and Stochastic Dominance," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 28(02), pages 301-311, June.
  44. Luenberger, David G., 1992. "Benefit functions and duality," Journal of Mathematical Economics, Elsevier, vol. 21(5), pages 461-481.
  45. Jun-ya Gotoh & Hiroshi Konno, 2000. "Third Degree Stochastic Dominance and Mean-Risk Analysis," Management Science, INFORMS, vol. 46(2), pages 289-301, February.
  46. Rubinstein, Mark E., 1973. "The Fundamental Theorem of Parameter-Preference Security Valuation," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 8(01), pages 61-69, January.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Lamb, John D. & Tee, Kai-Hong, 2012. "Resampling DEA estimates of investment fund performance," European Journal of Operational Research, Elsevier, vol. 223(3), pages 834-841.
  2. Lamb, John D. & Tee, Kai-Hong, 2012. "Data envelopment analysis models of investment funds," European Journal of Operational Research, Elsevier, vol. 216(3), pages 687-696.
  3. Kristiaan Kerstens & Amine Mounir & Amine Mounir & Ignace Van de Woestyne, 2008. "Geometric Representation of the Mean-Variance-Skewness Portfolio Frontier Based upon the Shortage Function," Working Papers 2008-ECO-17, IESEG School of Management.
  4. Briec, Walter & Kerstens, Kristiaan & Van de Woestyne, Ignace, 2011. "Portfolio Selection with Skewness: A Comparison and a Generalized Two Fund Separation Result," Working Papers 2011/09, Hogeschool-Universiteit Brussel, Faculteit Economie en Management.
  5. Walter Briec & Kristiaan Kerstens & Ignace Van de Woestyne, 2013. "Portfolio Selection with Skewness: A Comparison of Methods and a Generalized One Fund Result," Working Papers 2013-ECO-04, IESEG School of Management.
  6. Kerstens, Kristiaan & Mounir, Amine & Van de Woestyne, Ignace, 2010. "Non-Parametric Frontier Estimates of Mutual Fund Performance Using C- and L-Moments: Some Specification Tests," Working Papers 2010/10, Hogeschool-Universiteit Brussel, Faculteit Economie en Management.
  7. Constantin Zopounidis & Michael Doumpos, 2013. "Multicriteria decision systems for financial problems," TOP: An Official Journal of the Spanish Society of Statistics and Operations Research, Springer, vol. 21(2), pages 241-261, July.
  8. Massol, Olivier & Banal-Estañol, Albert, 2014. "Export diversification through resource-based industrialization: The case of natural gas," European Journal of Operational Research, Elsevier, vol. 237(3), pages 1067-1082.
  9. Kerstens, Kristiaan & Mounir, Amine & Van de Woestyne, Ignace, 2010. "Benchmarking Mean-Variance Portfolios. Using a Shortage Function: The Choice of Direction Vector," Working Papers 2010/01, Hogeschool-Universiteit Brussel, Faculteit Economie en Management.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:eee:dyncon:v:34:y:2010:i:4:p:636-656. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.