Robust Higher-order Moments and Efficient Portfolio Selection
79 Pages Posted: 19 Aug 2009
Date Written: July 24, 2009
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: Suggested Citation