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Optimum allocation of weights to assets in a portfolio: the case of nominal annualization versus effective annualization of returns

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  • Chun-Hao Chang
  • Brice DuPoyet
  • Arun Prakash

Abstract

Based on several research studies and in particular the theoretical study of Prakash et al. (1997), it is known that the variance as well as the skewness of the probability distribution of rates of return increases if the investors-investment interval increases. In the present study, using the portfolio selection procedure deveoloped by Lai (1991) under the presence of skewness and subsequently used by Chunhachinda et al. (1997) and Prakash et al. (2003), we find that the selection of investment interval (e.g. daily versus weekly versus monthly) significantly changes not only the optimal allocation of weights, but also the number of markets selected in the portfolio.

Suggested Citation

  • Chun-Hao Chang & Brice DuPoyet & Arun Prakash, 2008. "Optimum allocation of weights to assets in a portfolio: the case of nominal annualization versus effective annualization of returns," Applied Financial Economics, Taylor & Francis Journals, vol. 18(20), pages 1635-1646.
    • Handle: RePEc:taf:apfiec:v:18:y:2008:i:20:p:1635-1646
    DOI: 10.1080/09603100701720427
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    Cited by:

    1. Briec, Walter & Kerstens, Kristiaan & Van de Woestyne, Ignace, 2013. "Portfolio selection with skewness: A comparison of methods and a generalized one fund result," European Journal of Operational Research, Elsevier, vol. 230(2), pages 412-421.
    2. Farshad Noravesh & Kristiaan Kerstens, 2022. "Some connections between higher moments portfolio optimization methods," Papers 2201.00205, arXiv.org.

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