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Entropy 2011, 13(1), 117-133; doi:10.3390/e13010117

Article

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

Ilhan Usta and Yeliz Mert Kantar*

Department of Statistics, Science Faculty, Anadolu University, 26470 Eskisehir, Turkey

* Author to whom correspondence should be addressed.

Received: 2 December 2010; in revised form: 22 December 2010 / Accepted: 29 December 2010 / Published: 12 January 2011

Download PDF Full-Text [172 KB, uploaded 12 January 2011 12:28 CET]

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.

Keywords: portfolio selection; entropy; skewness; portfolio performance measures; out-of-sample performance

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