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Portfolio Selection with Higher Moments: A Polynomial Goal Programming Approach to ISE-30 Index


  • Gulder Kemalbay

    () (Yildiz Teknik University)

  • C. Murat Ozkut

    () (Izmir University of Economics)

  • Ceki Franko

    () (Izmir University of Economics)


The aim of this paper is to propose a portfolio selection model which takes into account the investors preferences for higher return moments such as skewness and kurtosis. In the presence of skewness and kurtosis, the portfolio selection problem can be characterized with multiple conflicting and competing objective functions such as maximizing expected return and skewness, and minimizing risk and kurtosis, simultaneously. By constructing polynomial goal programming, in which investor preferences for skewness and kurtosis incorporated, a Turkish Stock Market example will be presented for the period from January 2005 to December 2010.

Suggested Citation

  • 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.
  • Handle: RePEc:ist:ancoec:v:13:y:2011:i:1:p:41-61

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    References listed on IDEAS

    1. Arditti, Fred D., 1971. "Another Look at Mutual Fund Performance," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 6(03), pages 909-912, June.
    2. Harvey, Campbell R. & Siddique, Akhtar, 1999. "Autoregressive Conditional Skewness," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 34(04), pages 465-487, December.
    3. 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 915-919, September.
    4. Markus Haas, 2007. "Do investors dislike kurtosis?," Economics Bulletin, AccessEcon, vol. 7(2), pages 1-9.
    5. Chunhachinda, Pornchai & Dandapani, Krishnan & Hamid, Shahid & Prakash, Arun J., 1997. "Portfolio selection and skewness: Evidence from international stock markets," Journal of Banking & Finance, Elsevier, vol. 21(2), pages 143-167, February.
    6. Bertrand Maillet & Emmanuel Jurczenko, 2006. "Multi-moment Asset Allocation and Pricing Models," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) hal-00308990, HAL.
    7. Peiro, Amado, 1999. "Skewness in financial returns," Journal of Banking & Finance, Elsevier, vol. 23(6), pages 847-862, June.
    8. Kane, Alex, 1982. "Skewness Preference and Portfolio Choice," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 17(01), pages 15-25, March.
    9. 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..
    10. repec:ebl:ecbull:v:7:y:2007:i:2:p:1-9 is not listed on IDEAS
    11. Kraus, Alan & Litzenberger, Robert H, 1976. "Skewness Preference and the Valuation of Risk Assets," Journal of Finance, American Finance Association, vol. 31(4), pages 1085-1100, September.
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    More about this item


    Mean-Variance-Skewness-Kurtosis Portfolio Model; Polynomial Goal Programming; Risk Preference.;

    JEL classification:

    • C44 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Operations Research; Statistical Decision Theory
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions


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