Investing in Skews
Asset allocation has primarily focused its attention on attaining mean variance efficiency by employing diversification strategies following the portfolio selection methodologies of Markowitz[1952]. These are important principles that have given rise to a large variety of diversified investment choices in mutual funds that now outnumber the available choices for investment in stocks. Paralleling this development has been a growing interest in the second odd moment describing returns, the level of skewness. The empirical stability of return skewness has been noted in Beedles and Simkowitz[1980]. Earlier, the importance of skewness for portfolio selection was studied by Arditi and Levy[1975] and Kraus and Litzenberger[1976]. More recently, motivated by the persistence skews observed in option markets (Bates[1991]), Bakshi Kapadia, and Madan [2000] take up the issue of studying the links between the statistical and risk neutral skews, while Harvey and Siddique[1999] address the asset pricing implications of investor preferences for skewness. Evidence is also presented by Carr, Geman, Madan, and Yor [2000] that the primary model for diversified returns is that of a pure jump return process reflecting both, excess kurtosis and skewness.
Year of publication: |
2000
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Authors: | MADAN, DILIP B. ; MCPHAIL, GAVIN S. |
Published in: |
The Journal of Risk Finance. - MCB UP Ltd, ISSN 2331-2947, ZDB-ID 2048922-5. - Vol. 2.2000, 1, p. 10-18
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Publisher: |
MCB UP Ltd |
Saved in:
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