Mean-variance-skewness portfolio performance gauging: A general shortage function and dual approach
This paper proposes a nonparametric efficiency measurement approach for the static portfolio selection problem in mean-variance-skewness space. A shortage function is defined that looks for possible increases in return and skewness and decreases in variance. Global optimality is guaranteed for the resulting optimal portfolios. We also establish a link to a proper indirect mean-variance-skewness utility function. For computational reasons, the optimal portfolios resulting from this dual approach are only locally optimal. This framework permits to differentiate between portfolio efficiency and allocative efficiency, and a convexity efficiency component related to the difference between the primal, non-convex approach and the dual, convex approach. Furthermore, in principle, information can be retrieved about the revealed risk aversion and prudence of investors. An empirical section on a small sample of assets serves as an illustration.
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|Date of creation:||2007|
|Publication status:||Published in Management Science, INFORMS, 2007, 53 ((1)), pp.135-149|
|Note:||View the original document on HAL open archive server: https://hal.archives-ouvertes.fr/hal-00211572|
|Contact details of provider:|| Web page: https://hal.archives-ouvertes.fr/|
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