Modeling skewness in portfolio choice

Trung H. Le; Apostolos Kourtis; Raphael Markellos

doi:10.1002/fut.22408

Modeling skewness in portfolio choice

Trung H. Le, Apostolos Kourtis, Raphael Markellos

Research output: Contribution to journal › Article › peer-review

Abstract

We seek the best skewness models for portfolio choice decisions. To this end, we compare the predictive ability and portfolio performance of several prominent skewness models in a sample of ten international equity market indices. Overall, models that employ information from the option markets outperform models that only rely on stock returns. We propose an option-based skewness estimator that accounts for the skewness risk premium. This estimator offers the most informative forecasts of future skewness, the lowest prediction errors and the best portfolio performance in most of our tests.

Original language	English
Journal	Journal of Futures Markets
Early online date	13 Mar 2023
DOIs	https://doi.org/10.1002/fut.22408
Publication status	E-pub ahead of print - 13 Mar 2023

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10.1002/fut.22408Licence: CC BY-NC-ND

Le_etal_2023_JFuturesMarketsFinal published version, 2.39 MBLicence: CC BY-NC-ND

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3708200

Cite this

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title = "Modeling skewness in portfolio choice",

abstract = "We seek the best skewness models for portfolio choice decisions. To this end, we compare the predictive ability and portfolio performance of several prominent skewness models in a sample of ten international equity market indices. Overall, models that employ information from the option markets outperform models that only rely on stock returns. We propose an option-based skewness estimator that accounts for the skewness risk premium. This estimator offers the most informative forecasts of future skewness, the lowest prediction errors and the best portfolio performance in most of our tests.",

author = "Le, {Trung H.} and Apostolos Kourtis and Raphael Markellos",

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AB - We seek the best skewness models for portfolio choice decisions. To this end, we compare the predictive ability and portfolio performance of several prominent skewness models in a sample of ten international equity market indices. Overall, models that employ information from the option markets outperform models that only rely on stock returns. We propose an option-based skewness estimator that accounts for the skewness risk premium. This estimator offers the most informative forecasts of future skewness, the lowest prediction errors and the best portfolio performance in most of our tests.

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