Abstract

http://ssrn.com/abstract=1807264
 
 

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The Impact of Skewness and Fat Tails on the Asset Allocation Decision


James X. Xiong


Ibbotson Associates

Thomas Idzorek


Ibbotson Associates - A Morningstar Company

April, 11 2011

Financial Analysts Journal, Vol. 67, No. 2, 2011

Abstract:     
The authors modeled the non-normal returns of multiple asset classes by using a multivariate truncated Lévy flight distribution and incorporating non-normal returns into the mean-conditional value at risk (M-CVaR) optimization framework. In a series of controlled optimizations, they found that both skewness and kurtosis affect the M-CVaR optimization and lead to substantially different allocations than do the traditional mean–variance optimizations. They also found that the M-CVaR optimization would have been beneficial during the 2008 financial crisis.

Keywords: Portfolio Management: Asset Allocation, Quantitative Methods, Basic Statistical and Probability Concepts, Measures of Kurtosis, Measures of Skewness

Accepted Paper Series


Not Available For Download

Date posted: April 13, 2011  

Suggested Citation

Xiong, James X. and Idzorek, Thomas, The Impact of Skewness and Fat Tails on the Asset Allocation Decision (April, 11 2011). Financial Analysts Journal, Vol. 67, No. 2, 2011. Available at SSRN: http://ssrn.com/abstract=1807264

Contact Information

James X. Xiong (Contact Author)
Ibbotson Associates ( email )
United States
Thomas Idzorek
Ibbotson Associates - A Morningstar Company ( email )
225 North Michigan Avenue
Suite 700
Chicago, IL 60601
United States
312 696-6840 (Phone)
312 696-6701 (Fax)
HOME PAGE: http://www.ibbotson.com
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