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Efficient skewness/semivariance portfolios

Author

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  • Rui Pedro Brito

    () (University of Coimbra)

  • Hélder Sebastião

    (University of Coimbra)

  • Pedro Godinho

    (University of Coimbra)

Abstract

This article proposes a flexible methodology for portfolio selection using a skewness/semivariance biobjective optimisation framework. The solutions of this biobjective optimisation problem allow the investor to analyse the efficient trade-off between skewness and semivariance. This methodology is used empirically on four data sets, collected from the Fama/French data library. The out-of-sample performance of the skewness/semivariance model was assessed by choosing three portfolios belonging to each in-sample Pareto frontier and measuring their performance in terms of skewness per semivariance ratio, Sharpe ratio and Sortino ratio. Both the in-sample and the out-of-sample performance analyses were conducted using three different target returns for the semivariance computations. The results show that the efficient skewness/semivariance portfolios are consistently competitive when compared with several benchmark portfolios.

Suggested Citation

  • Rui Pedro Brito & Hélder Sebastião & Pedro Godinho, 2016. "Efficient skewness/semivariance portfolios," Journal of Asset Management, Palgrave Macmillan, vol. 17(5), pages 331-346, September.
  • Handle: RePEc:pal:assmgt:v:17:y:2016:i:5:d:10.1057_jam.2016.9
    DOI: 10.1057/jam.2016.9
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    References listed on IDEAS

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    Cited by:

    1. R. P. Brito & H. Sebastião & P. Godinho, 2017. "Portfolio choice with high frequency data: CRRA preferences and the liquidity effect," Portuguese Economic Journal, Springer;Instituto Superior de Economia e Gestao, vol. 16(2), pages 65-86, August.
    2. Ruili Sun & Tiefeng Ma & Shuangzhe Liu & Milind Sathye, 2019. "Improved Covariance Matrix Estimation for Portfolio Risk Measurement: A Review," Journal of Risk and Financial Management, MDPI, Open Access Journal, vol. 12(1), pages 1-34, March.

    More about this item

    Keywords

    portfolio selection; semivariance; skewness; multiobjective optimisation; derivative-free optimisation;

    JEL classification:

    • C44 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Operations Research; Statistical Decision Theory
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
    • C88 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - Other Computer Software
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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