University of Oulu

A mean-variance portfolio optimization based on firm characteristics and its performance evaluation

Saved in:
Author: Salehi, Hamed1
Organizations: 1University of Oulu, Oulu Business School, Department of Finance, Finance
Format: ebook
Version: published version
Access: open
Online Access: PDF Full Text (PDF, 1.7 MB)
Persistent link: http://urn.fi/URN:NBN:fi:oulu-201305201300
Language: English
Published: Oulu : H. Salehi, 2013
Publish Date: 2013-05-23
Physical Description: 65 p.
Thesis type: Master's thesis
Tutor: Kahra, Hannu
Reviewer: Perttunen, Jukka
Kahra, Hannu
Description:

Abstract

A flexible and financially sensible methodology that takes quantifiable firm’s characteristics into account when constructing a portfolio inspired by Brandt et al. (2009) and Hjalmarsson and Manchev (2010) is described. The method imposes the weights to be a linear function of characteristics for investor that maximizes return and penalizes for amount of volatility and solves the optimization model with a statistical method suggested by Britten-Jones (1999). It is designed in a way to be dollar-and beta-neutral.

In order to exploit the information of some of the return-predictive factors with the described method, we form various single- and combined-factor strategies on a portfolio of 76 stocks out of FTSE100 in the period of January 2000 to October 2011 both in-sample and 60-rolling window out-of-sample. The results show that the designed strategies based on abnormal return, Jenson’s alpha and bootstrapped Sharpe-ratio lead to better performance in most of the designed strategies. Holding-based and expectation-based evaluation methods also support our results.

see all

Subjects:
Copyright information: © Hamed Salehi, 2013. This publication is copyrighted. You may download, display and print it for your own personal use. Commercial use is prohibited.