Multivariate location-scale mixtures of normals and mean-variance-skewness portfolio allocation

Javier Mencia () and Enrique Sentana

Journal of Econometrics, 2009, vol. 153, issue 2, 105-121

Abstract: We show that the distribution of any portfolio whose components jointly follow a location-scale mixture of normals can be characterised solely by its mean, variance and skewness. Under this distributional assumption, we derive the mean-variance-skewness frontier in closed form, and show that it can be spanned by three funds. For practical purposes, we derive a standardised distribution, provide analytical expressions for the log-likelihood score and explain how to evaluate the information matrix. Finally, we present an empirical application in which we obtain the mean-variance-skewness frontier generated by the ten Datastream US sectoral indices, and conduct spanning tests.

Keywords: Generalised; hyperbolic; distribution; Maximum; likelihood; Portfolio; frontiers; Sortino; ratio; Spanning; tests; Tail; dependence (search for similar items in EconPapers)
Date: 2009
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (52)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0304-4076(09)00126-2
Full text for ScienceDirect subscribers only

Related works:
Working Paper: Multivariate location-scale mixtures of normals and mean-variance-skewness portfolio allocation (2009)
Working Paper: Multivariate Location-Scale Mixtures of Normals and Mean-Variance-skewness Portfolio Allocation (2008)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:econom:v:153:y:2009:i:2:p:105-121

Access Statistics for this article

Journal of Econometrics is currently edited by T. Amemiya, A. R. Gallant, J. F. Geweke, C. Hsiao and P. M. Robinson

More articles in Journal of Econometrics from Elsevier
Bibliographic data for series maintained by Catherine Liu ().