Multivariate Location-Scale Mixtures of Normals and Mean-Variance-skewness Portfolio Allocation

Javier Mencia () and Enrique Sentana

Working Papers from CEMFI

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-varianceskewness 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 meanvariance-skewness frontier generated by the ten Datastream US sectoral indices, and conduct spanning tests.

Date: 2008-04
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Related works:
Journal Article: 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 (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:cmf:wpaper:wp2008_0805

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