This paper re-examines portfolio higher moments,skewness and kurtosis,to see if we can use the resulting information to improve portfolio construction and diagnosis of any mis-specification. In common with most discussion of quantitative portfolio risk, we assume a linear factor model framework, some empirical calculations using ASX20 data are carried out. The major insight that we glean from this exercise is that a well-diversified portfolio of skewed stocks can have a symmetric distribution unless we pay some attention to the third moment structure.

These ideas are likely to have some potential application to fund of fund construction and the matching of bespoke portfolios to the risk attributes of high-net worth investors.

Please feel free to bring this to the attention of interested colleagues.