Portfolio selection models based on second-order stochastic dominance (SSD) have the advantage of providing portfolios that reflect the behavior of risk-averse investors without the need to specify the utility function. Several scholars apply SSD conditions with respect to a reference distribution, typically that of the market index, to find its dominant SSD portfolio. However, since the reference distribution could strongly influence asset allocation, in this article, we compare two SSD-based portfolio selection strategies with a reshaping of the reference distribution in terms of its skewness and, consequently, its variance. Through an extensive empirical analysis based on multiasset investment universes, we empirically show that the SSD portfolios dominating the new skewed benchmark index generally perform better.

Cesarone, F., Cesetti, R., Orlando, G., Martino, M.L., Ricci, J.M. (2022). Comparing SSD-Efficient Portfolios with a Skewed Reference Distribution. MATHEMATICS, 11(1), 50 [10.3390/math11010050].

Comparing SSD-Efficient Portfolios with a Skewed Reference Distribution

Cesarone, Francesco;Cesetti, Raffaello;Martino, Manuel Luis;Ricci, Jacopo Maria
2022-01-01

Abstract

Portfolio selection models based on second-order stochastic dominance (SSD) have the advantage of providing portfolios that reflect the behavior of risk-averse investors without the need to specify the utility function. Several scholars apply SSD conditions with respect to a reference distribution, typically that of the market index, to find its dominant SSD portfolio. However, since the reference distribution could strongly influence asset allocation, in this article, we compare two SSD-based portfolio selection strategies with a reshaping of the reference distribution in terms of its skewness and, consequently, its variance. Through an extensive empirical analysis based on multiasset investment universes, we empirically show that the SSD portfolios dominating the new skewed benchmark index generally perform better.
Cesarone, F., Cesetti, R., Orlando, G., Martino, M.L., Ricci, J.M. (2022). Comparing SSD-Efficient Portfolios with a Skewed Reference Distribution. MATHEMATICS, 11(1), 50 [10.3390/math11010050].
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/11590/426513
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