NDLI: Portfolio Selection and Optimization with Higher Moments: Evidence from the Indian Stock Market

Content Provider	Springer Nature Link
Author	Saranya, K. Prasanna, P. Krishna
Copyright Year	2014
Abstract	The Markowitz portfolio optimization model, popularly known as the Mean-Variance model, assumes that stockreturns follow normal distribution. But when stock returns do not follow normal distribution, this model wouldbe inadequate as it would prescribe sub-optimal portfolios. Stock market literature often deliberates that stock returns are non-normal. In such context the Markowitz model would not be sufficient to estimate the portfolio risks. The purpose of this paper is to expand the original Markowitz portfolio theory (mean-variance) via adding the higher order moments like skewness (third moment about the mean) and kurtosis (fourth moment about the mean) in the return characteristics. The research paper investigates the impact of including higher moments using multi-objective programming model for portfolio stock selection and optimization. The empirical results indicate that the inclusion of higher moments had a considerable impact in estimating the returns behavior of portfolios. The portfolios optimized using all the four moments, generated higher returns for the given level of risk in comparison to the returns of the Markowitz model during the study period 2000–2011. The results of this study would be immensely useful to fund managers, portfolio managers and investors as it would help them in understanding the Indian stock market behavior better and also in selecting alternative portfolio selection models.
Starting Page	133
Ending Page	149
Page Count	17
File Format	PDF
ISSN	13872834
Journal	Asia-Pacific Financial Markets
Volume Number	21
Issue Number	2
e-ISSN	15736946
Language	English
Publisher	Springer Japan
Publisher Date	2014-03-02
Publisher Place	Tokyo
Access Restriction	One Nation One Subscription (ONOS)
Subject Keyword	Higher moments Multi-objective optimization Non-normality Portfolio selection Portfolio optimization Finance/Investment/Banking Financial Economics International Economics Econometrics Economic Theory
Content Type	Text
Resource Type	Article
Subject	Finance

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1	Ministry of Education (GoI), Department of Higher Education	Sanctioning Authority	https://www.education.gov.in/ict-initiatives
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4	Project PI / Joint PI	Principal Investigator and Joint Principal Investigators of the project	Dr. B. Sutradhar bsutra@ndl.gov.in Prof. Saswat Chakrabarti will be added soon
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