Portfolio selection and skewness: Evidence from international stock markets |
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| Affiliation: | 1. School of Finance and China Financial Policy Research Center, Renmin University of China, Beijing, China;2. Center for Applied Statistics, School of Statistics, Renmin University of China, Beijing 100872, China;1. Department of Research and Statistics at CNMV, Calle Edison, 4, 28006 Madrid, Spain;2. Department of Business Administration at Universidad Carlos III de Madrid, Calle Madrid, 126, 28903, Getafe, Madrid, Spain;1. Department of Accounting and Finance, Applied Science University, Bahrain;2. School of Business, Lebanese American University, Lebanon;1. College of Business, Hunan Normal University, China;2. College of Modern Economics and Management, Jiangxi University of Finance and Economics, China |
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| Abstract: | ![]()
This paper finds that the returns of the world's 14 major stock markets are not normally distributed, and that the correlation matrix of these stock markets was stable during the January 1988–December 1993 time period. Polynomial goal programming, in which investor preferences for skewness can be incorporated, is utilized to determine the optimal portfolio consisting of the choices of 14 international stock indexes. The empirical findings suggest that the incorporation of skewness into an investor's portfolio decision causes a major change in the construction of the optimal portfolio. The evidence also indicate that investors trade expected return of the portfolio for skewness. |
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