How skewness influences optimal allocation in a risky asset?

This article extends the classic Samuelson (1970) and Merton (1973) model of optimal portfolio allocation with one risky asset and a riskless one to include the effect of the skewness. Using an extended version of Stein's Lemma, we provide the explicit solution for optimal demand that holds for <italic>all</italic> expected utility maximizing investors when the risky asset is skew-normally and normally distributed. A closed expression is achieved for investors with constant absolute risk aversion.