IDEAS home Printed from https://ideas.repec.org/p/fam/rpseri/rp71.html
   My bibliography  Save this paper

The Allocation of Assets Under Higher Moments

Author

Listed:
  • Eric Jondeau

    (Banque de France, DEER and ERUDITE, Université Paris 12 Val-de-Marne)

  • Michael Rockinger

    (HEC Lausanne, CEPR and FAME)

Abstract

We evaluate how deviations from normality may affect the allocation of assets. A Taylor expansion of expected utility allows us to focus on certain moments and to compute numerically the optimal portfolio allocation. A decisive advantage of our approach is that it remains operational even if a large number of assets is in-volved. We obtain that for small values of the risk-aversion parameter, non-normality does not alter significantly the optimal allocation. In contrast, when the investor is strongly risk averse and restricted to invest in risky assets, we also obtain significant changes in portfolio weights.

Suggested Citation

  • Eric Jondeau & Michael Rockinger, 2002. "The Allocation of Assets Under Higher Moments," FAME Research Paper Series rp71, International Center for Financial Asset Management and Engineering.
    • Handle: RePEc:fam:rpseri:rp71
    as

    Download full text from publisher

    File URL: http://www.swissfinanceinstitute.ch/rp71.pdf
    Download Restriction: no
    ---><---

    More about this item

    Keywords

    Asset allocation; Stock returns; Non-normality; Utility function;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:fam:rpseri:rp71. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Ridima Mittal (email available below). General contact details of provider: https://edirc.repec.org/data/fameech.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.