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Portfolio selection in multidimensional general and partial moment space

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  • Briec, Walter
  • Kerstens, Kristiaan

Abstract

This paper develops a general approach for the single period portfolio optimization problem in a multidimensional general and partial moment space. A shortage function is defined that looks for possible increases in odd moments and decreases in even moments. A main result is that this shortage function ensures sufficient conditions for global optimality. It also forms a natural basis for developing tests on the influence of additional moments. Furthermore, a link is made with an approximation of an arbitrary order of a general indirect utility function. This non-parametric efficiency measurement framework permits to differentiate mainly between portfolio efficiency and allocative efficiency. Finally, information can, in principle, be inferred about the revealed risk aversion, prudence, temperance and other higher-order risk characteristics of investors.

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  • Briec, Walter & Kerstens, Kristiaan, 2010. "Portfolio selection in multidimensional general and partial moment space," Journal of Economic Dynamics and Control, Elsevier, vol. 34(4), pages 636-656, April.
    • Handle: RePEc:eee:dyncon:v:34:y:2010:i:4:p:636-656
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    Keywords

    Shortage function Efficient frontier K-moment portfolios;

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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