Abstract:

The Modern Portfolio Theory as we know it proposes a portfolio selection that consider only the first two moments from a time series of returns. In spite of the popularity of Markowitz’s (1952) portfolio selection work, many improvement needs have been emerging throughout the years. All these are related to the hypothesis that Modern Portfolio Theory uses in order to get the equilibrium on capital markets constrain like the absence of transactions cost and assets financial efficiency. The aim of this paper is to use higher return moments such as skewness and kurtosis for portfolio selection. Given that consistent number of theoretical papers pointed out that portfolios with excess skewness and minimised kurtosis are preferred by investors and portfolio managers. Using polynomial goal programming, we make a comparison of two different strategies of portfolio selection bases on Bucharest Stock Exchange quotes. Intrinsic reusable preference parameters for higher order moments have resulted with respect to BSE shares. Shares having returns with low sensitivity to the market evolution get to be the most selected ones.