Efficient portfolio selection using higher order moments of the shares’ distribution - Mircea Bahna and Cosminn Octavian Cepoi

The Modern Portfolio Theory, based on Markowitz's (1952) work proposes a portfolio selection only taking into account the first two moments of a portfolio's return distribution, thus having a lot of critics since the author itself admits the need to use the third and forth moments of the distribution. The absence of the transaction costs to get the equilibrium on capital markets constraints is just one of the many criticised hypothesis. Since only after 90's, and increasingly after 2000 a series of theoretical works started pointing out to the preferences of individual and institutional investors towards skewness and kurtosis we've taken the responsibility of doing this analysis on BSE shares using the PGP methodology. The usage of sustainable indigenous parameters are computed for the selected BSE shares and we conclude that a certain correlation between the selection of shares inside the recommended portfolios and a low sensitivity to the market evolution.