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Multivariate location-scale mixtures of normals and mean-variance-skewness portfolio allocation
[journal article]
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-variance-skewness frontier in closed form, and show that it can ... view more
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-variance-skewness 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 mean-variance-skewness frontier generated by the ten Datastream US sectoral indices, and conduct spanning tests.... view less
Classification
Economic Statistics, Econometrics, Business Informatics
Free Keywords
C52; C32; G11; Generalised hyperbolic distribution; Maximum likelihood; Portfolio frontiers; Sortino ratio; Spanning tests; Tail dependence
Document language
English
Publication Year
2009
Page/Pages
p. 105-121
Journal
Journal of Econometrics, 153 (2009) 2
DOI
https://doi.org/10.1016/j.jeconom.2009.05.001
Status
Postprint; peer reviewed
Licence
PEER Licence Agreement (applicable only to documents from PEER project)