Home > Research > Publications & Outputs > Higher-order moments in the theory of diversifi...

Electronic data

View graph of relations

Higher-order moments in the theory of diversification and portfolio composition

Research output: Working paper

Publication date2013
Place of PublicationLancaster
PublisherLancaster University, Department of Economics
Number of pages26
Original languageEnglish

Publication series

NameEconomics Working Paper Series
PublisherLancaster University


This paper revisits the corner solution in classical portfolio choice theory in which risk-averse agents would all be optimally plungers rather than diversifiers. We examine the effect of higher-order moments of two-, three- and four-parameter density functions on the investor's decision to diversify in an expected utility framework. The empirical analysis provides estimates of four parametric and two semi-nonparametric densities for the S&P500 and concluded that allocation of all wealth in the risky asset would not have been optimal.