Portfolio choice and investor preferences: A semi-parametric approach based on risk horizon

Georges Hübner and Thomas Lejeune

No 289, Working Paper Research from National Bank of Belgium

Abstract: The paper proposes an innovative framework for characterizing investors' behavior in portfolio selection. The approach is based on the realistic perspective of unknown investors' utility and incomplete information on returns distribution. Using a four-moment generalization of the Chebyshev inequality, an intuitive risk measure, risk horizon, is introduced with reference to the speed of convergence of a portfolio's mean return to its expectation. Empirical implementation provides evidence on the consistency of the approach with standard portfolio criteria such as, among others, the Sharpe ratio, a shortfall probability decay-rate optimization and a general class of flexible three-parameter utility functions.

Keywords: Portfolio choice; risk-return trade-off; horizon (search for similar items in EconPapers)
JEL-codes: C14 G11 G12 (search for similar items in EconPapers)
Pages: 48 pages
Date: 2015-10
New Economics Papers: this item is included in nep-rmg and nep-upt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:nbb:reswpp:201510-289

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