TY - UNPB

T1 - Higher-order moments in the theory of diversification and portfolio composition

AU - Niguez, Trino-Manuel

AU - Paya, Ivan

AU - Peel, David

AU - Perote, Javier

PY - 2013

Y1 - 2013

N2 - 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.

AB - 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.

M3 - Working paper

T3 - Economics Working Paper Series

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

PB - Lancaster University, Department of Economics

CY - Lancaster

ER -