International Portfolio Optimization with Higher Moments

Maroua MHIRI, Jean-Luc PRIGENT

Abstract


We analyze the international portfolio optimization problem by introducing the higher moments of the main financial index returns. We take especially account of their skewness and kurtosis. We introduce various decision criteria, based on these moments. In this framework, we solve different optimization problems: skewness maximization, kurtosis minimization, Polynomial Goal Programming (PGP), and finally, truncated utility maximization. For all of these objective functions, we determine, analyze and compare the optimal solutions, especially their degree of diversification.

We illustrate our results on monthly returns of eighteen major international stock market indexes, for the period January 1988 through December 2007.


Full Text: PDF DOI: 10.5539/ijef.v2n5p157

Creative Commons License
This work is licensed under a Creative Commons Attribution 3.0 License.

International Journal of Economics and Finance  ISSN  1916-971X (Print) ISSN  1916-9728 (Online)

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