Mean-Variance Portfolio Optimization of Energy Stocks Supported with Second Order Stochastic Dominance Efficiency
Celal Barkan Guran (),
Umut Ugurlu () and
Oktay Tas ()
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Celal Barkan Guran: Istanbul Technical University, Management Engineering Department, Macka, Besiktas, Istanbul, Turkey
Umut Ugurlu: Bahcesehir University, Faculty of Economics, Administrative and Social Sciences, Management Department, Besiktas, Istanbul, Turkey
Oktay Tas: Istanbul Technical University, Management Engineering Department, Macka, Besiktas, Istanbul, Turkey
Czech Journal of Economics and Finance (Finance a uver), 2019, vol. 69, issue 4, 366-383
Second order stochastic dominance pairwise efficiency could be considered as a milestone among the improvements, which eliminates the shortcomings of mean-variance theory. This paper applies mean-variance optimization on the global fossil fuels stocks, as a leading representative of energy sector, with the help of the pre-elimination of second order stochastic dominance pairwise inefficient stocks. The performance of the application is additionally measured with an out-of-sample back-testing analysis, which indicates a contribution to the existing literature; second order stochastic dominance pre-elimination method increases the success of some of the selected mean-variance optimized portfolios on the efficient frontier which stand out with a better back-testing performance.
Keywords: different return-risk levels; fossil fuels energy stocks; mean-variance portfolio optimization; pairwise efficiency; second order stochastic dominance (search for similar items in EconPapers)
JEL-codes: G11 G14 (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:fau:fauart:v:69:y:2019:i:4:p:366-383
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