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Portfolio choice and investor preferences : A semi-parametric approach based on risk horizon

Author

Listed:
  • Georges Hübner

    (Deloitte Chaired Professor of Portfolio Management and Performance, HEC Management School - University of Liège, Rue Louvrex 14 - N1, B-4000 Liège, Belgium)

  • Thomas Lejeune

    (Research Department, NBB)

Abstract

The paper proposes an innovative framework for characterizing investors' behavior in portfolio selection. The approach is based on the realistic perspective of unknown investors' utility and incomplete information on returns distribution. Using a four-moment generalization of the Chebyshev inequality, an intuitive risk measure, risk horizon, is introduced with reference to the speed of convergence of a portfolio's mean return to its expectation. Empirical implementation provides evidence on the consistency of the approach with standard portfolio criteria such as, among others, the Sharpe ratio, a shortfall probability decay-rate optimization and a general class of flexible three-parameter utility functions.

Suggested Citation

  • Georges Hübner & Thomas Lejeune, 2015. "Portfolio choice and investor preferences : A semi-parametric approach based on risk horizon," Working Paper Research 289, National Bank of Belgium.
    • Handle: RePEc:nbb:reswpp:201510-289
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    References listed on IDEAS

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    More about this item

    Keywords

    Portfolio choice; risk-return trade-off; horizon;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General

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