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THE COST OF SKEWNESS IN PORTFOLIO RETURN DISTRIBUTIONS (OPTIONS, HEDGING, THREE-MOMENT ANALYSIS, ASYMMETRIC)
Abstract
The central issue of this study is the cost of skewness to investors who value positive skewness in their portfolio return distributions. Three-moment capital market theory is based on the proposition that investors who prefer positive skewness will trade some of their expected return to obtain the desired distribution asymmetry. The portfolio strategy of hedging with options enables investors to change the shape of the return probability distribution to create or increase positive skewness. The return-skewness tradeoff can be examined by grouping hedged and unhedged portfolio returns into risk classes. The difference in return between properly hedged and unhedged portfolios of the same risk is an estimate of the cost of skewness.
Subject Area
Finance
Recommended Citation
WINGENDER, JOHN RICHARD, "THE COST OF SKEWNESS IN PORTFOLIO RETURN DISTRIBUTIONS (OPTIONS, HEDGING, THREE-MOMENT ANALYSIS, ASYMMETRIC)" (1985). ETD collection for University of Nebraska-Lincoln. AAI8521487.
https://digitalcommons.unl.edu/dissertations/AAI8521487