Higher moments portfolio Optimization with unequal weights based on Generalized Capital Asset pricing model with independent and identically asymmetric Power Distribution
The main criterion in investment decisions is to maximize the investors utility. Traditional capital asset pricing models cannot be used when asset returns do not follow a normal distribution. For this reason, we use capital asset pricing model with independent and identically asymmetric power distributed (CAPM-IIAPD) and capital asset pricing model with asymmetric independent and identically asymmetric exponential power distributed with two tail parameters(CAPM-AIEPD) to estimate return and risk. When the assumption of normality is violated, the first and second moments lose their efficiency in optimization and we need to use the third and fourth moments. For the first time, we propose independent and identically asymmetric exponential power distributed with two tail parameters. Then, we use higher moments optimization with unequal weights to optimize portfolios. The results indicate that capital asset pricing model with independent and identically asymmetric power distributed (CAPM-IIAPD) is better than asymmetric independent and identically asymmetric exponential power distributed with two tail parameters(CAPM-AIEPD) to estimate return and risk. Adjusted Sharp ratio in portfolio optimization in second moments are higher than others. Adjusted returns to risk in third and fourth moments in the CAPM-IIAPD model significantly differ from the CAPM-AIEPD model and have a better performance.
In this paper it has been attempted to investigate the capability of the consumption-based capital asset pricing model (CCAPM), using the general method of moment (GMM), with regard to the Epstien-zin recursive preferences model for Iran's capital market. Generally speaking, recursive utility permits disentangling of the two psychologically separate concepts of risk aversion and elasticity of i...متن کامل
The present paper sets out to underline passive portfolio management on the Romanian capital market starting from the Capital Asset Pricing Model (CAPM) derived from the efficient market hypothesis, with no assumptions about the beliefs or preferences of investors. The efficient market hypothesis says that a speculator with limited resources cannot beat a particular index by a substantial facto...متن کامل
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I extend the Epstein-Zin-lognormal consumption-based asset-pricing model to allow for general i.i.d. consumption growth processes. Information about the higher moments—equivalently, cumulants—of consumption growth is encoded in the cumulantgenerating function (CGF). I express four observable quantities (the equity premium, riskless rate, consumption-wealth ratio and mean consumption growth) and...متن کامل
We propose a method for optimal portfolio selection using a Bayesian framework that addresses two major shortcomings of the Markowitz approach: the ability to handle higher moments and estimation error. We employ the skew normal distribution which has many attractive features for modeling multivariate returns. Our results suggest that it is important to incorporate higher order moments in portf...متن کامل
دوره 6 شماره 2
صفحات 1- 30
تاریخ انتشار 2021-04-01
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