IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

A Strategy for Including Odd and Even-Numbered Higher Moments in Portfolio Selection

  • Renato G. Flores Jr
  • Gustavo M. de Athayde
Registered author(s):

    Previous theoretical work by the authors has developed a framework for optimizing portfolio decisions when moments higher than the variance are considered. Apart a significant increase in computational complexity, inclusion of higher order moments implies a careful judgement on which cross-moments to choose as non-zero. The reason for this lies not only in that the number of cross-moments grows exponentially with the order (of the moment), making results more difficult to obtain and interpret, as well as in the fact that solutions can vary widely, depending on the zeros assigned to a given higher-order moments tensor. On the other hand, empirical evidence produced up to now shows that mean-variance solutions are usually not robust, so inclusion of some higher-order moments is a must. We try to outline criteria for setting up an optimal portfolio selection programme that tries to reconcile parsimony and simplicity of interpretation with the robustness acquired with the use of more moments. The criteria combine statistical (sample dependent) and theoretical considerations, to devise nearly-optimal rules to be applied in a concrete case. The rules can be easily translated to a dynamic setting. If the user accepts to include risk behaviour assumptions, the rules can be sharpened and the procedure becomes simpler. Though the framework is general, the paper focuses on the 3rd and 4th moment cases.

    To our knowledge, this item is not available for download. To find whether it is available, there are three options:
    1. Check below under "Related research" whether another version of this item is available online.
    2. Check on the provider's web page whether it is in fact available.
    3. Perform a search for a similarly titled item that would be available.

    Paper provided by Society for Computational Economics in its series Computing in Economics and Finance 2004 with number 341.

    as
    in new window

    Length:
    Date of creation: 11 Aug 2004
    Date of revision:
    Handle: RePEc:sce:scecf4:341
    Contact details of provider: Web page: http://comp-econ.org/
    Email:


    More information through EDIRC

    No references listed on IDEAS
    You can help add them by filling out this form.

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    When requesting a correction, please mention this item's handle: RePEc:sce:scecf4:341. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Christopher F. Baum)

    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.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with 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 profile, as there may be some citations waiting for confirmation.

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

    This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.