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Mean-Variance-Skewness Portfolio Performance Gauging: A General Shortage Function and Dual Approach

Author

Listed:
  • Walter Briec

    (University of Perpignan)

  • Kristiaan Kerstens

    () (CNRS-LEM and IESEG School of Management)

  • Octave Jokung

    (EDHEC Business School, Lille)

Abstract

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.

Suggested Citation

  • Walter Briec & Kristiaan Kerstens & Octave Jokung, 2005. "Mean-Variance-Skewness Portfolio Performance Gauging: A General Shortage Function and Dual Approach," Working Papers 2005-ECO-05, IESEG School of Management.
  • Handle: RePEc:ies:wpaper:e200505
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    shortage function; efficient frontier; mean-variance-skewness; portfolios; risk aversion; prudence;

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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