The Entrenched Kurtosis in Current Portfolio Returns

Apostolos Xanthopoulos ()

The Journal of Economic Asymmetries, 2012, vol. 9, issue 2, 77-97

Abstract: Responses of asset returns to indices introduce kurtosis in portfolio returns. Preoccupation with ‘tail-risk’ entails modeling portfolio exposure to second and fourth moment deviations around the mean return. For quadratic utility optimizers, kurtosis aversion could be viewed as either platykurtosis-seeking or leptokurtosis-aversion. The investor observes kurtosis and operates at a ‘prudent’ trade-off between it and variance, leading to abrupt adjustments. Combined risk tolerance mitigates his response, as weights are adjusted in comparison to rolling deviations of mean-variance portfolio returns from normality. Maintaining value through the crisis is achieved by abrupt changes in consistent kurtosis, and moderation once the latter become entrenched.

Keywords: Quadratic Utility Function; Nonlinear Asset Response; Portfolio Kurtosis (search for similar items in EconPapers)
JEL-codes: C02 G11 G15 (search for similar items in EconPapers)
Date: 2012
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Persistent link: https://EconPapers.repec.org/RePEc:eee:joecas:v:9:y:2012:i:2:p:77-97

DOI: 10.1016/j.jeca.2012.02.005

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