Mean-Variance-Skewness-Entropy Measures: A Multi-Objective Approach for Portfolio Selection

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USTA İ., MERT KANTAR Y.

ENTROPY, vol.13, no.1, pp.117-133, 2011 (SCI-Expanded) identifier identifier

  • Publication Type: Article / Article
  • Volume: 13 Issue: 1
  • Publication Date: 2011
  • Doi Number: 10.3390/e13010117
  • Journal Name: ENTROPY
  • Journal Indexes: Science Citation Index Expanded (SCI-EXPANDED), Social Sciences Citation Index (SSCI), Scopus
  • Page Numbers: pp.117-133
  • Keywords: portfolio selection, entropy, skewness, portfolio performance measures, out-of-sample performance, DIVERSIFICATION, RISK, SHARPE, MODEL, RATIO
  • Anadolu University Affiliated: Yes

Abstract

In this study, we present a multi-objective approach based on a mean-variance-skewness-entropy portfolio selection model (MVSEM). In this approach, an entropy measure is added to the mean-variance-skewness model (MVSM) to generate a well-diversified portfolio. Through a variety of empirical data sets, we evaluate the performance of the MVSEM in terms of several portfolio performance measures. The obtained results show that the MVSEM performs well out-of sample relative to traditional portfolio selection models.