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Do higher moments really matter in portfolio choice?

Listed author(s):
  • Athayde, Gustavo M. de
  • Flôres Junior, Renato Galvão

We present explicit formulas for evaluating the difference between Markowitz weights and those from optimal portfolios, with the same given return, considering either asymmetry or kurtosis. We prove that, whenever the higher moment constraint is not binding, the weights are never the same. If, due to special features of the first and second moments, the difference might be negligible, in quite many cases it will be very significant. An appealing illustration, when the designer wants to incorporate an asset with quite heavy tails, but wants to moderate this effect, further supports the argument.

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File URL: http://bibliotecadigital.fgv.br/dspace/bitstream/10438/928/1/1756.pdf
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Paper provided by FGV/EPGE - Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil) in its series FGV/EPGE Economics Working Papers (Ensaios Economicos da EPGE) with number 574.

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Date of creation: 01 Dec 2004
Handle: RePEc:fgv:epgewp:574
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  1. Rubens Penha Cysne, 2009. "On the Positive Correlation between Income Inequality and Unemployment," The Review of Economics and Statistics, MIT Press, vol. 91(1), pages 218-226, February.
  2. Monteiro, Paulo Klinger, 2009. "First-price auction symmetric equilibria with a general distribution," Games and Economic Behavior, Elsevier, vol. 65(1), pages 256-269, January.
  3. Veloso, Fernando A. & Ferreira, Pedro Cavalcanti & Pessoa, Samuel de Abreu, 2004. "On the tyranny of numbers: East Asian miracles in world perspective," FGV/EPGE Economics Working Papers (Ensaios Economicos da EPGE) 569, FGV/EPGE - Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil).
  4. Daniel Gottlieb & Lucas Maestri, 2004. "Banning Information As A Redistributive Device," Anais do XXXII Encontro Nacional de Economia [Proceedings of the 32th Brazilian Economics Meeting] 046, ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Graduate Programs in Economics].
  5. Cysne, Rubens Penha, 2004. "On the statistical estimation of diffusion processes: a survey," FGV/EPGE Economics Working Papers (Ensaios Economicos da EPGE) 540, FGV/EPGE - Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil).
  6. Marcelo Côrtes Néri & Marcelo Casal Xerez, 2003. "Desenho de um Sistema de Metas Sociais," Anais do XXXI Encontro Nacional de Economia [Proceedings of the 31th Brazilian Economics Meeting] b18, ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Graduate Programs in Economics].
  7. Martimort, David & Moreira, Humberto Ataíde, 2004. "Common agency with informed principals," FGV/EPGE Economics Working Papers (Ensaios Economicos da EPGE) 551, FGV/EPGE - Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil).
  8. Barbosa, Fernando de Holanda, 2004. "Dois experimentos de política monetária no modelo novo-keynesiano," FGV/EPGE Economics Working Papers (Ensaios Economicos da EPGE) 547, FGV/EPGE - Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil).
  9. Cysne, Rubens Penha & Maldonado, Wilfredo Fernando Leiva & Monteiro, P. K., 2004. "Inflation and income inequality: a shopping-time aproach: (Forthcoming, Journal of Development Economics)," FGV/EPGE Economics Working Papers (Ensaios Economicos da EPGE) 566, FGV/EPGE - Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil).
  10. Cysne, Rubens Penha, 2004. "On the Statistical Estimation of Diffusion Processes: A Partial Survey," Brazilian Review of Econometrics, Sociedade Brasileira de Econometria - SBE, vol. 24(2), November.
  11. Xiao, Zhijie & Lima, Luiz Renato Regis de Oliveira, 2004. "Purchasing power parity and the unit root tests: a robust analysis," FGV/EPGE Economics Working Papers (Ensaios Economicos da EPGE) 552, FGV/EPGE - Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil).
  12. Aloisio Araujo & Luciano I. de Castro Filho, 2004. "Pure Strategy Equilibria of Multidimensional and Non-Monotonic Auctions," Econometric Society 2004 Latin American Meetings 300, Econometric Society.
  13. Cysne, Rubens Penha, 2004. "A general-equilibrium closed-form solution to the welfare costs of inflation (Forthcoming, Revista Brasileira de Economia)," FGV/EPGE Economics Working Papers (Ensaios Economicos da EPGE) 562, FGV/EPGE - Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil).
  14. Perez, Leonardo Pio & Ferreira, Pedro Cavalcanti, 2004. "Efeitos macroeconômicos e custos sociais de uma transição entre regimes de previdência no Brasil," FGV/EPGE Economics Working Papers (Ensaios Economicos da EPGE) 556, FGV/EPGE - Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil).
  15. Gottlieb, Daniel & Moreira, Humberto Ataíde & Araújo, Aloísio Pessoa de, 2004. "A model of mixed signals with applications to countersignaling an the GED," FGV/EPGE Economics Working Papers (Ensaios Economicos da EPGE) 553, FGV/EPGE - Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil).
  16. Cysne, Rubens Penha, 2004. "Income inequality: the role of impatience in a job-search process," FGV/EPGE Economics Working Papers (Ensaios Economicos da EPGE) 559, FGV/EPGE - Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil).
  17. Cysne, Rubens Penha, 2004. "A search-theoretic explanation for the negative correlation between labor income and impatience," FGV/EPGE Economics Working Papers (Ensaios Economicos da EPGE) 558, FGV/EPGE - Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil).
  18. Cysne, Rubens Penha, 2004. "Inflation and income inequality: A link through the job-search process," FGV/EPGE Economics Working Papers (Ensaios Economicos da EPGE) 557, FGV/EPGE - Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil).
  19. Cysne, Rubens Penha, 2004. "Solving the non-convexity problem in some shopping-time and human-capital models," FGV/EPGE Economics Working Papers (Ensaios Economicos da EPGE) 567, FGV/EPGE - Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil).
  20. Cysne, Rubens P. & Maldonado, Wilfredo L. & Monteiro, Paulo Klinger, 2005. "Inflation and income inequality: A shopping-time approach," Journal of Development Economics, Elsevier, vol. 78(2), pages 516-528, December.
  21. Cysne, Rubens Penha & Lisbôa, Paulo César Coimbra, 2004. "Imposto Inflacionário e Transferências Inflacionárias no Mercosul e nos Estados Unidos," FGV/EPGE Economics Working Papers (Ensaios Economicos da EPGE) 572, FGV/EPGE - Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil).
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