Friday, May 10, 2019

What is the relationship between risk aversion and preference for skewness and kurtosis in portfolio optimization?


Is there any relationship between the risk aversion coefficient in an individual's utility function (commonly used in portfolio optimization) and the preference for higher moments such as skewness and kurtosis? In what range, approximately, should they be? Logically, a relationship should exist, as they all somehow represent the investor's attitude towards risk.





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