Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/246374 
Year of Publication: 
2019
Citation: 
[Journal:] Operations Research Perspectives [ISSN:] 2214-7160 [Volume:] 6 [Publisher:] Elsevier [Place:] Amsterdam [Year:] 2019 [Pages:] 1-15
Publisher: 
Elsevier, Amsterdam
Abstract: 
This paper originally proposes two unique closed-form solutions, respectively to risky assets only and a risk-free asset existing situations, of the mean-variance-skewness (MVS) optimization model subject to mean-sknewness-normalization constraints for portfolio selection. The efficient frontier and capital allocation surface (CAS) respectively derived from the two solutions are two hyperboloids, and tangent to each other at one hyperbola referred to as the market portfolio curve. Moreover, this curve intersects the mean-skewness plane of the portfolio return wtih zero-variance (zero-risk) at a line. Calculating the distance between a point on the coincident curve with the vertex of the CAS, we present a novel ratio to measure the performance of the risk-adjusted returns of market portfolio. The ratio is similar to the Sharpe ratio, moreover, under the more realistic assumption that portfolio returns follow a skew-normal distribution, the novel ratio can quantify the degree (or absence) of market portfolio exuberance.
Subjects: 
Portfolio selection
Mean-variance-skewness optimization model
Skew-normal distribution
Unique closed-form solution
Efficient frontier
Tangency portfolio
Ratio of return versus risk
JEL: 
G11
C61
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by Logo
Document Type: 
Article

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