Robust portfolio estimation under skew-normal return processes

In this paper, we study issues related to the optimal portfolio estimators and the local asymptotic normality (LAN) of the return process under the assumption that the return process has an MA(∞) representation with skew-normal innovations. The paper consists of two parts. In the first part, we discuss the influence of the skewness parameter δ of the skew-normal distribution on the optimal portfolio estimators. Based on the asymptotic distribution of the portfolio estimator gˆ for a non-Gaussian dependent return process, we evaluate the influence of δ on the asymptotic variance V(δ) of gˆ. We also investigate the robustnessof t he estimators of a standard optimal portfolio via numerical computations. In the second part of the paper, we assume that the MA coefficients and the mean vector of the return process depend on a lower dimensional set of parameters. Based on this assumption, we discuss the LAN property of the return’s distribution when the innovations follow a skew-normal law. The influence of δ on the central sequence of LAN is evaluated both theoretically and numerically.