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Do investors dislike kurtosis?

Author

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  • Markus Haas

    () (University of Munich)

Abstract

We show that decreasing absolute prudence implies kurtosis aversion. The ``proof''' of this relation is usually based on the identification of kurtosis with the fourth centered moment of the return distribution and a Taylor approximation of the utility function. A more sound analysis is required, however, as such heuristic arguments have been shown to be logically flawed.

Suggested Citation

  • Markus Haas, 2007. "Do investors dislike kurtosis?," Economics Bulletin, AccessEcon, vol. 7(2), pages 1-9.
  • Handle: RePEc:ebl:ecbull:eb-06g00072
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    References listed on IDEAS

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    5. Benoit Mandelbrot, 2015. "The Variation of Certain Speculative Prices," World Scientific Book Chapters,in: THE WORLD SCIENTIFIC HANDBOOK OF FUTURES MARKETS, chapter 3, pages 39-78 World Scientific Publishing Co. Pte. Ltd..
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    7. 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.
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    Cited by:

    1. Back, Kerry, 2014. "A characterization of the coskewness–cokurtosis pricing model," Economics Letters, Elsevier, vol. 125(2), pages 219-222.
    2. Eugenio Peluso & Alain Trannoy, 2012. "Preserving dominance relations through disaggregation: the evil and the saint," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 39(2), pages 633-647, July.
    3. Gulder Kemalbay & C. Murat Ozkut & Ceki Franko, 2011. "Portfolio Selection with Higher Moments: A Polynomial Goal Programming Approach to ISE-30 Index," Istanbul University Econometrics and Statistics e-Journal, Department of Econometrics, Faculty of Economics, Istanbul University, vol. 13(1), pages 41-61, Special I.
    4. Juliane Proelss & Denis Schweizer, 2014. "Polynomial goal programming and the implicit higher moment preferences of US institutional investors in hedge funds," Financial Markets and Portfolio Management, Springer;Swiss Society for Financial Market Research, vol. 28(1), pages 1-28, February.

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    JEL classification:

    • G0 - Financial Economics - - General

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