Consumer Expenditure-Based Portfolio Optimization

Attila Bányai, Tibor Tatay (), Gergő Thalmeiner and László Pataki
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Attila Bányai: Doctoral School of Economic and Regional Sciences, Hungarian University of Agriculture and Life Sciences, Páter Károly str. 1, H-2100 Gödöllő, Hungary
Tibor Tatay: Department of Statistics, Finances and Controlling, Széchenyi István University, Egyetem square 1, H-9026 Győr, Hungary
Gergő Thalmeiner: Department of Investment, Finance and Accounting, Hungarian University of Agriculture and Life Sciences, Páter Károly str. 1, H-2100 Gödöllő, Hungary
László Pataki: Doctoral School of Management and Business Administration, John von Neumann University, Infopark sétány 1, H-1117 Budapest, Hungary

IJFS, 2025, vol. 13, issue 2, 1-18

Abstract: This study examines whether portfolio optimization can be effectively based on annual changes in the harmonized index of consumer prices (HICP) data. Specifically, we assess whether asset allocation based on consumer expenditure can generate superior returns compared to static or equal-weighted asset allocation. To explore this, we use consumer expenditure data from HICP statistics categorized by COICOP. Our findings indicate that this strategy outperforms a buy-and-hold benchmark by 13.32% in terms of the Sharpe Ratio and exceeds an annual equal-weighted rebalancing strategy by 3.11%. Additionally, both the Calmar and Sterling Ratios demonstrate improved performance, further reinforcing the robustness of this approach. Furthermore, a hypothetical scenario where sector weights from the end of the given year—though not yet available during the year—are used suggests even greater improvements in performance. A high-sample bootstrap simulation confirms that the observed performance differences are not random but reflect the independent effectiveness of asset allocation based on consumer expenditure trends. This result strengthens the validity of our backtesting findings, indicating that the examined strategy could generate excess returns compared to passive portfolio managment and fixed-weight rebalancing approaches. The result of the study is therefore the development of an effective portfolio rebalancing strategy.

Keywords: consumer basket; diversification; portfolio optimization; harmonized index of consumer prices (HICP); Sharpe ratio (search for similar items in EconPapers)
JEL-codes: F2 F3 F41 F42 G1 G2 G3 (search for similar items in EconPapers)
Date: 2025
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