Effect of Intervalling and Skewness on Portfolio Selection in Developed and Developing Markets

Abstract

Based on several research studies and in particular the theoretical study of Prakash, de Boyrie, Hamid and Smyser (1997), it is known that the variance as well as the skewness of the probability distribution of rates of return increases if the investors’ investment interval increases. In the present study, using the portfolio selection procedure developed by Lai (1991) under the presence of skewness and subsequently used by Chunhachinda, Dandapani, Hamid and Prakash (1997) and Prakash, Chang and Pactwa (2003), we find that the selection of investment interval (e.g. daily, weekly vs. monthly) significantly changes not only the optimal allocation of weights, but also the number of markets selected in the portfolio.

Keywords: Skewness, Returns, Portfolio Allocation

JEL Classification: G11, G15