Mean-Variance-Skewness Portfolio Performance Gauging: A General Shortage Function and Dual Approach

Walter Briec, Kristiaan Kerstens and Octave Jokung
Additional contact information
Walter Briec: University of Perpignan
Octave Jokung: EDHEC Business School, Lille

No 2005-ECO-05, Working Papers from IESEG School of Management

Abstract: This paper proposes a nonparametric efficiency measurement approach for the static portfolio selection problem in mean-variance-skewness space. A shortage function is defined that looks for possible increases in return and skewness and decreases in variance. Global optimality is guaranteed for the resulting optimal portfolios. We also establish a link to a proper indirect mean-variance-skewness utility function. For computational reasons, the optimal portfolios resulting from this dual approach are only locally optimal. This framework permits to differentiate between portfolio efficiency and allocative efficiency, and a convexity efficiency component related to the difference between the primal, non-convex approach and the dual, convex approach. Furthermore, in principle, information can be retrieved about the revealed risk aversion and prudence of investors. An empirical section on a small sample of assets serves as an illustration.

Keywords: shortage function; efficient frontier; mean-variance-skewness; portfolios; risk aversion; prudence (search for similar items in EconPapers)
JEL-codes: G11 (search for similar items in EconPapers)
Pages: 36 pages
Date: 2005-09
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

Published in Management Science, January 2007, 53(1), pp. 135-149

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Related works:
Journal Article: Mean-Variance-Skewness Portfolio Performance Gauging: A General Shortage Function and Dual Approach (2007)
Working Paper: Mean-variance-skewness portfolio performance gauging: A general shortage function and dual approach (2007)
Working Paper: Mean-Variance Skewness Portfolio Performance Gauging:A General Shortage Function and Dual Approach (2005)
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