A risk-gain dominance maximization approach to enhanced index tracking

Francesco Cesarone, Lorenzo Lampariello and Simone Sagratella

Finance Research Letters, 2019, vol. 29, issue C, 231-238

Abstract: Following the research strands of enhanced index tracking and of portfolio performance measures optimization, we propose to choose, among the feasible asset portfolios of a given market, the one that maximizes the geometric mean of the differences between its risk and gain and those of a suitable reference benchmark, such as the market index. This approach, which has a peculiar geometric interpretation and enjoys remarkable features, provides the efficient portfolio that dominates the largest amount of portfolios dominating the reference benchmark index. Preliminary empirical results highlight good out-of-sample performances of our approach compared with those of the market index.

Keywords: Asset allocation; Portfolio performance measures optimization; Enhanced indexation; Nonlinear programming (search for similar items in EconPapers)
JEL-codes: C60 G10 G11 (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:29:y:2019:i:c:p:231-238

DOI: 10.1016/j.frl.2018.08.001

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