Abstract
The goal of core-satellite investing is to optimally balance the portfolio allocation between a core and satellite investment. This paper provides an explicit solution when the investor's optimality criterion is the third-order and fourth-order expansion of the expected utility function, respectively. Based on a numeric example, we document the sensitivity of the proposed weights to coskewness and cokurtosis components. Finally, we use ETFs to examine the portfolio performance of the core-satellite strategy with higher order moments. We document that integrating the higher order moment in core-satellite investing can improve the financial performance of a portfolio.
Original language | English |
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Pages (from-to) | 1815-1831 |
Number of pages | 17 |
Journal | Quantitative Finance |
Volume | 23 |
Issue number | 12 |
DOIs | |
Publication status | Published - 2023 |
Bibliographical note
Funding Information:This work was partially supported by the Characteristic & Preponderant Discipline of Key Construction Universities in Zhejiang Province (Zhejiang Gongshang University-Statistics) and the Collaborative Innovation Center of Statistical Data Engineering Technology & Application. National Natural Science Foundation of China [grant number 71771187, 72011530149, 72163029] and Fundamental Research Funds for the Central Universities in China [grant number JBK190602].
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