Algorithmic Portfolio Tilting to Harvest Higher Moment Gains

15 Pages Posted: 13 May 2019 Last revised: 6 Jun 2019

See all articles by Kris Boudt

Kris Boudt

Ghent University; Vrije Universiteit Brussel; Vrije Universiteit Amsterdam

Dries Cornilly

Vrije Universiteit Brussel (VUB); KU Leuven

Frederiek Van Holle

Degroof Petercam Asset Management

Joeri Willems

Degroof Petercam Asset Management

Date Written: May 8, 2019

Abstract

Many financial portfolios are optimized without taking the higher moments into account. We recommend tilting these portfolios in a direction that increases their estimated mean and third central moment and decreases their variance and fourth central moment. The advantages of tilting come at the cost of deviation from the initial optimality criterion. In this paper, we show the usefulness of portfolio tilting applied to the equally-weighted, equal-risk-contribution and maximum diversification portfolios in a UCITS-compliant asset allocation setting.

Keywords: mean-variance-skewness-kurtosis, non-normality, portfolio allocation, tilting

JEL Classification: G110, C100

Suggested Citation

Boudt, Kris and Cornilly, Dries and Van Holle, Frederiek and Willems, Joeri, Algorithmic Portfolio Tilting to Harvest Higher Moment Gains (May 8, 2019). Available at SSRN: https://ssrn.com/abstract=3378491 or http://dx.doi.org/10.2139/ssrn.3378491

Kris Boudt

Ghent University ( email )

Sint-Pietersplein 5
Gent, 9000
Belgium

Vrije Universiteit Brussel ( email )

Pleinlaan 2
http://www.vub.ac.be/
Brussels, 1050
Belgium

Vrije Universiteit Amsterdam ( email )

De Boelelaan 1105
Amsterdam, ND North Holland 1081 HV
Netherlands

Dries Cornilly (Contact Author)

Vrije Universiteit Brussel (VUB) ( email )

Pleinlaan 2
Brussels, Brussels 1050
Belgium

KU Leuven

Celestijnenlaan 200B
Leuven, Vlaams-Brabant 3001
Belgium

Frederiek Van Holle

Degroof Petercam Asset Management ( email )

Rue Guimard 18
Brussels, 1040
Belgium
0032474400867 (Phone)

Joeri Willems

Degroof Petercam Asset Management ( email )

Rue Guimard 18
Brussels, 1040
Belgium

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