Author: Thierry Post
Publisher:
ISBN:
Category :
Languages : en
Pages : 44
Book Description
This study develops a portfolio optimization method based on the Stochastic Dominance (SD) decision criterion and the Empirical Likelihood (EL) estimation method. SD and EL share a distribution-free assumption framework which allows for dynamic and non-Gaussian multivariate return distributions. The SD/EL method can be implemented using a two-stage procedure which first elicits the implied probabilities using Convex Optimization and subsequently constructs the optimal portfolio using Linear Programming. The solution asymptotically dominates the benchmark and optimizes the goal function in probability, for a class of weakly dependent processes. A Monte Carlo simulation experiment illustrates the improvement in estimation precision using a set of conservative moment conditions about common factors in small samples. In an application to equity industry momentum strategies, SD/EL yields important out-of-sample performance improvements relative to heuristic diversification, Mean-Variance optimization, and a simple 'plug-in' approach.
Portfolio Construction Based on Stochastic Dominance and Empirical Likelihood
Author: Thierry Post
Publisher:
ISBN:
Category :
Languages : en
Pages : 44
Book Description
This study develops a portfolio optimization method based on the Stochastic Dominance (SD) decision criterion and the Empirical Likelihood (EL) estimation method. SD and EL share a distribution-free assumption framework which allows for dynamic and non-Gaussian multivariate return distributions. The SD/EL method can be implemented using a two-stage procedure which first elicits the implied probabilities using Convex Optimization and subsequently constructs the optimal portfolio using Linear Programming. The solution asymptotically dominates the benchmark and optimizes the goal function in probability, for a class of weakly dependent processes. A Monte Carlo simulation experiment illustrates the improvement in estimation precision using a set of conservative moment conditions about common factors in small samples. In an application to equity industry momentum strategies, SD/EL yields important out-of-sample performance improvements relative to heuristic diversification, Mean-Variance optimization, and a simple 'plug-in' approach.
Publisher:
ISBN:
Category :
Languages : en
Pages : 44
Book Description
This study develops a portfolio optimization method based on the Stochastic Dominance (SD) decision criterion and the Empirical Likelihood (EL) estimation method. SD and EL share a distribution-free assumption framework which allows for dynamic and non-Gaussian multivariate return distributions. The SD/EL method can be implemented using a two-stage procedure which first elicits the implied probabilities using Convex Optimization and subsequently constructs the optimal portfolio using Linear Programming. The solution asymptotically dominates the benchmark and optimizes the goal function in probability, for a class of weakly dependent processes. A Monte Carlo simulation experiment illustrates the improvement in estimation precision using a set of conservative moment conditions about common factors in small samples. In an application to equity industry momentum strategies, SD/EL yields important out-of-sample performance improvements relative to heuristic diversification, Mean-Variance optimization, and a simple 'plug-in' approach.
Stochastic dominance in portfolio analysis and asset pricing
Author: Andrey M. Lizyayev
Publisher: Rozenberg Publishers
ISBN: 9036101875
Category :
Languages : en
Pages : 136
Book Description
Publisher: Rozenberg Publishers
ISBN: 9036101875
Category :
Languages : en
Pages : 136
Book Description
Empirical Tests for Stochastic Dominance Efficiency
Author: Thierry Post
Publisher:
ISBN:
Category :
Languages : en
Pages : 0
Book Description
We derive empirical tests for the stochastic dominance efficiency of a given portfolio with respect to all possible portfolios constructed from a set of assets. The tests can be computed using straightforward linear programming. Bootstrapping techniques and asymptotic distribution theory can approximate the sampling properties of the test results and allow for statistical inference. Our results could provide a stimulus to the further proliferation of stochastic dominance for the problem of portfolio selection and evaluation. Using our tests, the Fama and French market portfolio is significantly inefficient relative to benchmark portfolios formed on market capitalization and book-to-market equity ratio.
Publisher:
ISBN:
Category :
Languages : en
Pages : 0
Book Description
We derive empirical tests for the stochastic dominance efficiency of a given portfolio with respect to all possible portfolios constructed from a set of assets. The tests can be computed using straightforward linear programming. Bootstrapping techniques and asymptotic distribution theory can approximate the sampling properties of the test results and allow for statistical inference. Our results could provide a stimulus to the further proliferation of stochastic dominance for the problem of portfolio selection and evaluation. Using our tests, the Fama and French market portfolio is significantly inefficient relative to benchmark portfolios formed on market capitalization and book-to-market equity ratio.
Portfolio Selection by Second Order Stochastic Dominance Based on the Risk Aversion Degree of Investors
Author: Leili Javanmardi
Publisher:
ISBN:
Category :
Languages : en
Pages :
Book Description
Publisher:
ISBN:
Category :
Languages : en
Pages :
Book Description
Stochastic Portfolio Theory
Author: E. Robert Fernholz
Publisher: Springer Science & Business Media
ISBN: 1475736991
Category : Business & Economics
Languages : en
Pages : 190
Book Description
Stochastic portfolio theory is a mathematical methodology for constructing stock portfolios and for analyzing the effects induced on the behavior of these portfolios by changes in the distribution of capital in the market. Stochastic portfolio theory has both theoretical and practical applications: as a theoretical tool it can be used to construct examples of theoretical portfolios with specified characteristics and to determine the distributional component of portfolio return. This book is an introduction to stochastic portfolio theory for investment professionals and for students of mathematical finance. Each chapter includes a number of problems of varying levels of difficulty and a brief summary of the principal results of the chapter, without proofs.
Publisher: Springer Science & Business Media
ISBN: 1475736991
Category : Business & Economics
Languages : en
Pages : 190
Book Description
Stochastic portfolio theory is a mathematical methodology for constructing stock portfolios and for analyzing the effects induced on the behavior of these portfolios by changes in the distribution of capital in the market. Stochastic portfolio theory has both theoretical and practical applications: as a theoretical tool it can be used to construct examples of theoretical portfolios with specified characteristics and to determine the distributional component of portfolio return. This book is an introduction to stochastic portfolio theory for investment professionals and for students of mathematical finance. Each chapter includes a number of problems of varying levels of difficulty and a brief summary of the principal results of the chapter, without proofs.
Stochastic Dominance
Author: G. A. Whitmore
Publisher:
ISBN:
Category : Business & Economics
Languages : en
Pages : 424
Book Description
Theoretical foundations of stochastic dominance; Portfolio applications: empirical studies; Portfolio applications: computational aspects; Applications to financial management and capital markets; Applications in economic theory and analysis.
Publisher:
ISBN:
Category : Business & Economics
Languages : en
Pages : 424
Book Description
Theoretical foundations of stochastic dominance; Portfolio applications: empirical studies; Portfolio applications: computational aspects; Applications to financial management and capital markets; Applications in economic theory and analysis.
Portfolio Choice Based on Third-Degree Stochastic Dominance
Author: Thierry Post
Publisher:
ISBN:
Category :
Languages : en
Pages : 31
Book Description
We develop an optimization method for constructing investment portfolios that dominate a given benchmark index in terms of third-degree stochastic dominance. Our approach relies on the properties of the semivariance function, a refinement of an existing 'super-convex' dominance condition and quadratic constrained programming. We apply our method to historical stock market data using an industry momentum strategy. Our enhanced portfolio generates important performance improvements compared with alternatives based on mean-variance dominance and second-degree stochastic dominance. Relative to the CSRP all-share index, our portfolio increases average out-of-sample return by almost seven percentage points per annum without incurring more downside risk, using quarterly rebalancing and without short selling.
Publisher:
ISBN:
Category :
Languages : en
Pages : 31
Book Description
We develop an optimization method for constructing investment portfolios that dominate a given benchmark index in terms of third-degree stochastic dominance. Our approach relies on the properties of the semivariance function, a refinement of an existing 'super-convex' dominance condition and quadratic constrained programming. We apply our method to historical stock market data using an industry momentum strategy. Our enhanced portfolio generates important performance improvements compared with alternatives based on mean-variance dominance and second-degree stochastic dominance. Relative to the CSRP all-share index, our portfolio increases average out-of-sample return by almost seven percentage points per annum without incurring more downside risk, using quarterly rebalancing and without short selling.
Portfolio Analysis of Stocks, Bonds and Managed Futures Using Compormise Stochastic Dominance
Author: Daniel Fischmar
Publisher:
ISBN:
Category : Futures market
Languages : en
Pages : 36
Book Description
Publisher:
ISBN:
Category : Futures market
Languages : en
Pages : 36
Book Description
A Comprehensive Empirical Comparison of Stochastic Dominance and Mean-variance Portfolio Models
Author: R. Burr Porter
Publisher:
ISBN:
Category : Investments
Languages : en
Pages : 48
Book Description
Publisher:
ISBN:
Category : Investments
Languages : en
Pages : 48
Book Description
A Review of Portfolio Choice Based on Stochastic Dominance
Author: Thierry Post
Publisher:
ISBN:
Category :
Languages : en
Pages : 0
Book Description
Theoretical concepts together with estimation and optimization methods for portfolio choice based on Stochastic Dominance are reviewed. Distinction is drawn between the concepts of Pairwise Dominance, Admissibility, Optimality, Efficiency and Spanning. Results of selected empirical studies and practical applications are discussed.
Publisher:
ISBN:
Category :
Languages : en
Pages : 0
Book Description
Theoretical concepts together with estimation and optimization methods for portfolio choice based on Stochastic Dominance are reviewed. Distinction is drawn between the concepts of Pairwise Dominance, Admissibility, Optimality, Efficiency and Spanning. Results of selected empirical studies and practical applications are discussed.