Revealed preferences for portfolio selection – does skewness matter?

Merrill W. Liechty and Ümit Sağlam

Applied Economics Letters, 2017, vol. 24, issue 14, 968-971

Abstract: In this article, we consider the portfolio selection problem as a Bayesian decision problem. We compare the traditional mean–variance and mean–variance–skewness efficient portfolios. We develop bi-level programming problem to investigate the market’s preference for risk by using observed (market) weights. Numerical experiments are conducted on a portfolio formed by the 30 stocks in the Dow Jones Industrial Average. Numerical results show that the market’s preferences are better explained when skewness is included.

Date: 2017
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DOI: 10.1080/13504851.2016.1243207

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