Exploring the efficacy of higher moments in portfolio optimisation
- Neither word in “portfolio optimization” is very good — a much better phrase is “trade selection”
- An experiment hints at the usefulness of skewness and kurtosis for equities
- The number of parameters explodes for skewness and kurtosis for large asset universes
- Factor models and shrinkage are two possible ways of modeling skewness and kurtosis
- There is a lot that we don’t know
Presented 2013 December 9 at the London Quant Group.