European Workshop on Efficiency and Productivity Analysis edition:13 location:Helsinki (Finland) date:17-20 June 2013
This paper develops a nonparametric efficiency measurement approach for the static portfolio selection problem in mean-variance-skewness-kurtosis space. A shortage function is defined that can characterize both mixed risk-loving and mixed risk-aversion preferences: it can either look for possible increases in all four moments, or look for increases in uneven moments and decreases in even moments. We also establish appropriate duality relations with four moment investor utility functions. This framework is illustrated with two-dimensional and three-dimensional geometric reconstructions of the optimal portfolio frontiers. Furthermore, we try to characterize the optimal portfolios corresponding to the risk-loving and risk-averse preferences.