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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)

Registered author(s):

    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.

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    File URL: http://eidergisi.istanbul.edu.tr/sayi13/iueis13m3.pdf
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    Article provided by Department of Econometrics, Faculty of Economics, Istanbul University in its journal Istanbul University Econometrics and Statistics e-Journal.

    Volume (Year): 13 (2011)
    Issue (Month): 1 (Special Issue of 12th International Symposium on Econommetrics, Operation Research and Statistics)
    Pages: 41-61

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    Handle: RePEc:ist:ancoec:v:13:y:2011:i:1:p:41-61
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    1. Kane, Alex, 1982. "Skewness Preference and Portfolio Choice," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 17(01), pages 15-25, March.
    2. 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.
    3. 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.
    4. 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.
    5. Markus Haas, 2007. "Do investors dislike kurtosis?," Economics Bulletin, AccessEcon, vol. 7(2), pages 1-9.
    6. Benoit Mandelbrot, 1963. "The Variation of Certain Speculative Prices," The Journal of Business, University of Chicago Press, vol. 36, pages 394.
    7. 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.
    8. repec:ebl:ecbull:v:7:y:2007:i:2:p:1-9 is not listed on IDEAS
    9. 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.
    10. Peiro, Amado, 1999. "Skewness in financial returns," Journal of Banking & Finance, Elsevier, vol. 23(6), pages 847-862, June.
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