Controlling portfolio skewness and kurtosis without directly optimizing third and fourth moments

Woo Chang Kim, Frank Fabozzi (), Patrick Cheridito and Charles Fox

Economics Letters, 2014, vol. 122, issue 2, 154-158

Abstract: In spite of their importance, third or higher moments of portfolio returns are often neglected in portfolio construction problems due to the computational difficulties associated with them. In this paper, we propose a new robust mean–variance approach that can control portfolio skewness and kurtosis without imposing higher moment terms. The key idea is that, if the uncertainty sets are properly constructed, robust portfolios based on the worst-case approach within the mean–variance setting favor skewness and penalize kurtosis.

Keywords: Portfolio selection; Robust portfolio; Higher moments; Mean–variance framework (search for similar items in EconPapers)
JEL-codes: C61 C63 C65 G11 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (21)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:122:y:2014:i:2:p:154-158

DOI: 10.1016/j.econlet.2013.11.024

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