Multivariate location-scale mixtures of normals and mean-variance-skewness portfolio allocation
AbstractWe show that the distribution of any portfolio whose components jointly follow a location-scale mixture of normals can be characterised solely by its mean, variance and skewness. Under this distributional assumption, we derive the mean-variance-skewness frontier in closed form, and show that it can be spanned by three funds. For practical purposes, we derive a standardised distribution, provide analytical expressions for the log-likelihood score and explain how to evaluate the information matrix. Finally, we present an empirical application in which we obtain the mean-variance-skewness frontier generated by the ten Datastream US sectoral indices, and conduct spanning tests.
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Bibliographic InfoArticle provided by Elsevier in its journal Journal of Econometrics.
Volume (Year): 153 (2009)
Issue (Month): 2 (December)
Contact details of provider:
Web page: http://www.elsevier.com/locate/jeconom
Generalised hyperbolic distribution Maximum likelihood Portfolio frontiers Sortino ratio Spanning tests Tail dependence;
Other versions of this item:
- Javier Mencía & Enrique Sentana, 2009. "Multivariate location-scale mixtures of normals and mean-variance-skewness portfolio allocation," Banco de Espaï¿½a Working Papers 0909, Banco de Espa�a.
- Enrique Sentana & Javier Mencía, 2008. "Multivariate Location-Scale Mixtures Of Normals And Mean-Variance-Skwness Portfolio Allocation," Working Papers wp2008_0805, CEMFI.
- C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
- C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
- G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
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