Transfer Entropy Approach for Portfolio Optimization: An Empirical Approach for CESEE Markets

Tihana Škrinjarić, Derick Quintino and Paulo Ferreira

JRFM, 2021, vol. 14, issue 8, 1-12

Abstract: In this paper, we deal with the possibility of using econophysics concepts in dynamic portfolio optimization. The main idea of the research is that combining different methodological aspects in portfolio selection can enhance portfolio performance over time. Using data on CESEE stock market indices, we model the dynamics of entropy transfers from one return series to others. In the second step, the results are utilized in simulating the portfolio strategies that take into account the previous results. Here, the main results indicate that using entropy transfers in portfolio construction and rebalancing has the potential to achieve better portfolio value over time when compared to benchmark strategies.

Keywords: econophysics; portfolio selection; dynamic analysis; stock markets (search for similar items in EconPapers)
JEL-codes: C E F2 F3 G (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (4)

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