Higher order comoments of multifactor models and asset allocation

Kris Boudt, Wanbo Lu and Benedict Peeters

Finance Research Letters, 2015, vol. 13, issue C, 225-233

Abstract: Accurate estimates of the higher order comoments are needed in asset allocation. We derive explicit formulas for the higher order comoments under the assumption that stock returns are generated by a multifactor model and show that this assumption leads to a substantial reduction in the number of parameters to estimate compared to the traditional approach. An out-of-sample analysis of the performance of portfolio allocation criteria that depend on the higher order comoments illustrates the usefulness of the proposed methodology.

Keywords: Factor models; Higher order comoments; Portfolio selection (search for similar items in EconPapers)
JEL-codes: C58 G11 G12 G15 (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (14)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:13:y:2015:i:c:p:225-233

DOI: 10.1016/j.frl.2014.12.008

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