Portfolio Selection with Higher Moments and Application on Zagreb Stock Exchange

The Modern Portfolio Theory (MPT) has started a revolution in academic and investors’ circles since 1950s. In spite of the popularity of Markowitz’s portfolio selection, many critiques have been emerging throughout the years. One of them is the non normality of empirical return distributions. Accordingly, models have been developed in order to incorporate the aforementioned non normality. This paper focuses on the role of these models and optimizes a model with incorporated portfolio higher moments on Zagreb Stock Exchange. The results indicate that incorporating higher moments into the analysis changes the results sustainably when compared to the initial model. JEL Classification: G11