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Portfolio Selection with Skewness: A Comparison and a Generalized Two Fund Separation Result

Author

Listed:
  • Briec, Walter

    () (Universit´e de Perpignan, Perpignan, France)

  • Kerstens, Kristiaan

    () (IESEG School of Management, Lille, France)

  • Van de Woestyne, Ignace

    () (Hogeschool-Universiteit Brussel (HUB), Belgium)

Abstract

The main aim of this contribution is to compare existing and newly developed techniques for geometrically representing mean-variance-skewness portfolio frontiers based on the rather widely adapted methodology of polynomial goal programming (PGP) on the one hand and the more recent approach based on the shortage function on the other hand. Moreover, we explain the working of these different methodologies in detail and provide graphical illustrations. Inspired by these illustrations, we prove a generalization of the well-known two fund separation theorem from traditional mean-variance portfolio theory.

Suggested Citation

  • Briec, Walter & Kerstens, Kristiaan & Van de Woestyne, Ignace, 2011. "Portfolio Selection with Skewness: A Comparison and a Generalized Two Fund Separation Result," Working Papers 2011/09, Hogeschool-Universiteit Brussel, Faculteit Economie en Management.
  • Handle: RePEc:hub:wpecon:201109
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    References listed on IDEAS

    as
    1. Walter Briec & Kristiaan Kerstens & Octave Jokung, 2007. "Mean-Variance-Skewness Portfolio Performance Gauging: A General Shortage Function and Dual Approach," Management Science, INFORMS, vol. 53(1), pages 135-149, January.
    2. Prakash, Arun J. & Chang, Chun-Hao & Pactwa, Therese E., 2003. "Selecting a portfolio with skewness: Recent evidence from US, European, and Latin American equity markets," Journal of Banking & Finance, Elsevier, vol. 27(7), pages 1375-1390, July.
    3. Brodie, Joshua & Daubechies, Ingrid & De Mol, Christine & Giannone, Domenico, 2007. "Sparse and Stable Markowitz Portfolios," CEPR Discussion Papers 6474, C.E.P.R. Discussion Papers.
    4. repec:bbe:wpaper:200203 is not listed on IDEAS
    5. Shady Aboul-Enein & Georges Dionne & Nicolas Papageorgiou, 2013. "Performance analysis of a collateralized fund obligation (CFO) equity tranche," The European Journal of Finance, Taylor & Francis Journals, vol. 19(6), pages 518-553, July.
    6. Kerstens, Kristiaan & Mounir, Amine & Van de Woestyne, Ignace, 2011. "Geometric representation of the mean-variance-skewness portfolio frontier based upon the shortage function," European Journal of Operational Research, Elsevier, vol. 210(1), pages 81-94, April.
    7. Briec, Walter & Kerstens, Kristiaan, 2010. "Portfolio selection in multidimensional general and partial moment space," Journal of Economic Dynamics and Control, Elsevier, vol. 34(4), pages 636-656, April.
    8. 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.
    9. Chun-Hao Chang & Brice Dupoyet & Arun Prakash, 2008. "Effect of intervalling and skewness on portfolio selection in developed and developing markets," Applied Financial Economics, Taylor & Francis Journals, vol. 18(21), pages 1697-1707.
    10. Walter Briec & Kristiaan Kerstens & Jean Baptiste Lesourd, 2001. "Single Period Markowitz Portfolio Selection, Performance Gading and Duality: A Variation on Luenberger'a Shortage Function," Working Papers 0203, Departament Empresa, Universitat Autònoma de Barcelona, revised Apr 2002.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    shortage function; PGP; efficient frontier; mean-variance; mean-skewness; mean-varianceskewness;

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