Journal of Mathematical Finance, Forthcoming
Posted: 8 Jun 2016 Last revised: 31 Jul 2016
Date Written: June 7, 2016
In 1952 Harry Markowitz put forth a solution to the portfolio selection process. He summarizes the stages and objectives with the following, “The process of selecting a portfolio may be divided into two stages. The first stage starts with observation and experience and ends with beliefs about the future performances of available securities. The second stage starts with the relevant beliefs about future performances and ends with the choice of portfolio.” We offer a complimentary extension of modern portfolio theory, namely the redefinition of the second stage via partial moments and the probabilistic reformulation of security analysis of the first stage via the conditioning of returns with entropy proxies.
Keywords: Portfolio Theory, Partial Moments, Behavioral Finance, Utility Theory
JEL Classification: C00, G00, G11
Suggested Citation: Suggested Citation