Robust Higher-order Moments and Efficient Portfolio Selection

79 Pages Posted: 19 Aug 2009

See all articles by Bertrand B. Maillet

Bertrand B. Maillet

EMLyon Business School (Paris Campus)

Paul M. Merlin

CES/CNRS - University of Paris-1 (Panthéon-Sorbonne); A.A.Advisors

Date Written: July 24, 2009

Abstract

This article proposes a non-parametric portfolio selection criterion for the static asset allocation problem in a robust higher-moment framework. Adopting the Shortage Function approach, we generalize the multi-objective optimization technique in a four-dimensional space using L-moments, and focus on various illustrations of a fourdimensional set of the first four L-moment primal efficient portfolios. Our empirical findings, using a large European stock database, mainly rediscover the earlier works by Jean (1973) and Ingersoll (1975), regarding the shape of the extended higher-order moment efficient frontier, and confirm the seminal prediction by Levy and Markowitz (1979) about the accuracy of the mean-variance criterion.

Keywords: Efficient Frontier, Portfolio Selection, Robust Higher L-moments, Shortage Function, Goal Attainment Application

JEL Classification: C14, C22, C44, C61

Suggested Citation

Maillet, Bertrand B. and Merlin, Paul M., Robust Higher-order Moments and Efficient Portfolio Selection (July 24, 2009). Available at SSRN: https://ssrn.com/abstract=1457703 or http://dx.doi.org/10.2139/ssrn.1457703

Bertrand B. Maillet (Contact Author)

EMLyon Business School (Paris Campus) ( email )

23 Avenue Guy de Collongue
Ecully, 69132
France

Paul M. Merlin

CES/CNRS - University of Paris-1 (Panthéon-Sorbonne) ( email )

Paris, IL
+33677960660 (Phone)

A.A.Advisors ( email )

3 av Hoche
Paris, 75008
France
+33677960660 (Phone)

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