A note on optimal portfolios under regime-switching

Markus Haas

VfS Annual Conference 2016 (Augsburg): Demographic Change from Verein für Socialpolitik / German Economic Association

Abstract: This paper extends the stochastic dominance rules for normal mixture distributions derived by Levy and Kaplanski (2015). First, the portfolios under consideration are allowed to follow different regime-switching processes. Second, the results are extended from second- to fourth-order stochastic dominance, which is known to be closely related to kurtosis aversion in financial markets and allows to compare mixture distributions with the same overall variance. In particular, when a risk-free asset is available, checking for fourth-order stochastic dominance turns out to amount to a comparison of the regime-specific and overall Sharpe ratios of the portfolios under consideration.

JEL-codes: C46 C58 G11 (search for similar items in EconPapers)
Date: 2016
New Economics Papers: this item is included in nep-ore
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Citations: View citations in EconPapers (2)

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Journal Article: A note on optimal portfolios under regime–switching (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:vfsc16:145493

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