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Do Portfolio Investors Need To Consider The Asymmetry Of Returns On The Russian Stock Market?

Valeria Lakshina ()
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Valeria Lakshina: National Research University Higher School of Economics

HSE Working papers from National Research University Higher School of Economics

Abstract: This paper uses the parsimonious method of embedding skewness in asset allocation based on the Taylor expansion of the investor utility function up to the third term and maximizing it by portfolio weights. This approach also enables us to consider investor risk aversion. Time-dependent multivariate asset moments are obtained via the GOGARCH volatility model with a normal-inverse Gaussian distribution for the error term. We explore the performance of the usual 2 moment utility and its 3 moment counterpart for a portfolio consisted of twenty assets traded on the Russian stock market. The results demonstrate that the 3 moment utility significantly outperforms the 2 moment utility by SD, MAD and CVaR for low levels of absolute risk aversion and by portfolio returns and investor utility level during the whole forecast period.

Keywords: portfolio optimization; asymmetry of returns; risk aversion; GO-GARCH; normal-inverse Gaussian distribution; utility approach. (search for similar items in EconPapers)
JEL-codes: C13 C22 C58 G11 G17 (search for similar items in EconPapers)
Pages: 21 pages
Date: 2019
New Economics Papers: this item is included in nep-cis, nep-ore, nep-rmg and nep-upt
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Published in WP BRP Series: Financial Economics / FE, July 2019, pages - 21

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Persistent link: https://EconPapers.repec.org/RePEc:hig:wpaper:75/fe/2019

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