Mean-variance-skewness model for portfolio selection


Altayligil Y. B.

ISTANBUL UNIVERSITY JOURNAL OF THE SCHOOL OF BUSINESS, vol.37, no.2, pp.65-78, 2008 (Peer-Reviewed Journal) identifier identifier

  • Publication Type: Article / Article
  • Volume: 37 Issue: 2
  • Publication Date: 2008
  • Doi Number: 10.1016/j.cor.2006.02.012
  • Journal Name: ISTANBUL UNIVERSITY JOURNAL OF THE SCHOOL OF BUSINESS
  • Journal Indexes: Emerging Sources Citation Index
  • Page Numbers: pp.65-78
  • Keywords: Markowitz Portfolio Theory, Mean-Variance, Skewness, Entropy, Portfolio Selection

Abstract

In this paper, mean-variance-skewness (MVS) model is proposed first for optimal portfolio selection from financial assets, and then mean-variance-skewness-entopy (MVSE) model by adding entropy measure is proposed in order to obtain well diversified portfolio. In MVS and MVSE, Pearson skewness measure which is robust and easy to calculate than traditional skewness measures is used. Both models are used in IMKB-30 for portfolio selection and the results are compared with Markowitz mean-variance (MV) model. It is showed that more efficient portfolios can be selected by MVS model than MV model.