Portfolio management with higher moments: the cardinality impact
| Autor: | Pedro Godinho, Helder Sebastião, Rui Pedro Brito |
|---|---|
| Jazyk: | angličtina |
| Rok vydání: | 2017 |
| Předmět: |
Mathematical optimization
jel:C63 Strategy and Management jel:C61 0211 other engineering and technologies Mathematics::Optimization and Control Portfolio management cardinality expected utility maximization CRRA preferences derivative-free optimization PSI20 index 02 engineering and technology Management Science and Operations Research jel:C44 jel:C88 PSI20 index expected utility maximization Computer Science::Computational Engineering Finance and Science Management of Technology and Innovation CRRA preferences Derivative-free optimization 0202 electrical engineering electronic engineering information engineering Economics Cardinality (SQL statements) Business and International Management derivative-free optimization 021103 operations research jel:C58 Computer Science Applications jel:G11 Scholarship cardinality 020201 artificial intelligence & image processing portfolio management Expected utility maximization Project portfolio management |
| Zdroj: | Repositório Científico de Acesso Aberto de Portugal Repositório Científico de Acesso Aberto de Portugal (RCAAP) instacron:RCAAP |
| Popis: | In this paper we extend the study of the cardinality impact from the standard mean-variance scenario to higher moments, considering a utility maximization framework. For each scenario, we propose a bi-objective model that allows the investor to directly analyse the efficient trade-off between expected utility and cardinality. We study not only the effect of cardinality in each scenario but also the real gain of considering higher moments in portfolio management. This analysis is performed assuming that the investor has constant relative risk aversion (CRRA) preferences. For the data collected on the PSI20 index, the empirical results showed that there are no performance gains, in-sample, from the efficient mean-variance expected utility/cardinality portfolios to the efficient expected utility/cardinality portfolios when higher moments are considered. However, the out-of-sample performance of the efficient mean-variance-skewness expected utility/cardinality portfolios and of the efficient mean-variance-skewness-kurtosis expected utility/cardinality portfolios suggest the existence of real gains, especially when transaction costs are considered. |
| Databáze: | OpenAIRE |
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