To read the full version of this content please select one of the options below:

Investing in Skews

DILIP B. MADAN (Professor of finance at the Robert H. Smith School of Business at the University of Maryland in College Park, Maryland.)
GAVIN S. MCPHAIL (Student at the Robert H. Smith School of Business at the University of Maryland in College Park, Maryland.)

Journal of Risk Finance

ISSN: 1526-5943

Article publication date: 1 April 2000

Abstract

Asset allocation has primarily focused its attention on attaining mean variance efficiency by employing diversification strategies following the portfolio selection methodologies of Markowitz[1952]. These are important principles that have given rise to a large variety of diversified investment choices in mutual funds that now outnumber the available choices for investment in stocks. Paralleling this development has been a growing interest in the second odd moment describing returns, the level of skewness. The empirical stability of return skewness has been noted in Beedles and Simkowitz[1980]. Earlier, the importance of skewness for portfolio selection was studied by Arditi and Levy[1975] and Kraus and Litzenberger[1976]. More recently, motivated by the persistence skews observed in option markets (Bates[1991]), Bakshi Kapadia, and Madan [2000] take up the issue of studying the links between the statistical and risk neutral skews, while Harvey and Siddique[1999] address the asset pricing implications of investor preferences for skewness. Evidence is also presented by Carr, Geman, Madan, and Yor [2000] that the primary model for diversified returns is that of a pure jump return process reflecting both, excess kurtosis and skewness.

Citation

MADAN, D.B. and MCPHAIL, G.S. (2000), "Investing in Skews", Journal of Risk Finance, Vol. 2 No. 1, pp. 10-18. https://doi.org/10.1108/eb022941

Publisher

:

MCB UP Ltd

Copyright © 2000, MCB UP Limited