This paper examines the portfolio selection problem with skew normal asset returns. By exploring an alternative parameterization of Azzalini & Dalla Valle (1996)'s multivariate skew normal distribution I show that the multivariate skew normal distribution is a special case of Simaan (1993)'s three-parameter model. All Simaan (1993)'s results are applicable to the skew normal asset returns. The three-parameter efficient frontier is spanned by three funds which include two funds from the

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... ance portfolio selection. Combining the skew normal asset returns with the CARA utility, I obtain the closed-form certainty equivalent and skewness premium. I show that the skewness premium is positive (negative) when asset returns have negative (positive) skewness. The magnitude of the skewness premium is increasing in market risk aversion. I use the skew normal certainty equivalent to evaluate the economic value of incorporating higher moments in portfolio selection. I find that when investors face broad investment opportunities, the economic value of considering higher moments is negligible under realistic margin requirements. (JEL. G11, G12, D81)