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|Title:||Skewness-aware asset allocation: A new theoretical framework and empirical evidence||Authors:||Low, C.
Optimal portfolio allocation
Prospective satisficing measures
|Issue Date:||2012||Citation:||Low, C., Pachamanova, D., Sim, M. (2012). Skewness-aware asset allocation: A new theoretical framework and empirical evidence. Mathematical Finance 22 (2) : 379-410. ScholarBank@NUS Repository. https://doi.org/10.1111/j.1467-9965.2010.00463.x||Abstract:||This paper presents a new measure of skewness, skewness-aware deviation, that can be linked to prospective satisficing risk measures and tail risk measures such as Value-at-Risk. We show that this measure of skewness arises naturally also when one thinks of maximizing the certainty equivalent for an investor with a negative exponential utility function, thus bringing together the mean-risk, expected utility, and prospective satisficing measures frameworks for an important class of investor preferences. We generalize the idea of variance and covariance in the new skewness-aware asset pricing and allocation framework. We show via computational experiments that the proposed approach results in improved and intuitively appealing asset allocation when returns follow real-world or simulated skewed distributions. We also suggest a skewness-aware equivalent of the classical Capital Asset Pricing Model beta, and study its consistency with the observed behavior of the stocks traded at the NYSE between 1963 and 2006. © 2010 Wiley Periodicals, Inc.||Source Title:||Mathematical Finance||URI:||http://scholarbank.nus.edu.sg/handle/10635/44214||ISSN:||09601627||DOI:||10.1111/j.1467-9965.2010.00463.x|
|Appears in Collections:||Staff Publications|
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