The effectiveness of incorporating higher moments in portfolio strategies: evidence from the Chinese commodity futures markets

Qingfu Liu, Pan Jiang, Yunbi An and Keith Cheung

Quantitative Finance, 2020, vol. 20, issue 4, 653-668

Abstract: This paper examines portfolio strategies that incorporate individual and systematic higher-order moments, within a stochastic optimization framework with uncertain mean and covariance. Using weekly, daily, and 30-minute interval data on Chinese commodity futures, we show that incorporating higher moments into portfolio strategies generally leads to better performance. The systematic fourth-order moment, among all systematic moments considered, can lead to the most robust, and a relatively large, improvement in investment performance, while the contribution of individual moments to the improved performance depends on the data horizon. We also find that adding higher moments brings superior performance in more cases for 30-minute-interval data than for other low-frequency data, suggesting that our strategy most likely performs best in 30-minute-rebalancing investments.

Date: 2020
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Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:taf:quantf:v:20:y:2020:i:4:p:653-668

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DOI: 10.1080/14697688.2019.1687926

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