State-dependent stock selection in index tracking: a machine learning approach
Reza Bradrania (),
Davood Pirayesh Neghab and
Additional contact information
Reza Bradrania: UniSA Business, University of South Australia, North Trace
Davood Pirayesh Neghab: Koç University
Mojtaba Shafizadeh: University of Tehran
Financial Markets and Portfolio Management, 2022, vol. 36, issue 1, No 1, 28 pages
Abstract We focus on the stock selection step of the index tracking problem in passive investment management and incorporate constant changes in the dynamics of markets into the decision. We propose an approach, using machine learning techniques, which analyses the performance of the selection methods used in previous market states and identifies the one that gives the optimal tracking portfolio in each period. We apply the proposed procedure using the popular cointegration technique in index tracking and show that it tracks the S&P 500 with a very high level of accuracy. The empirical evidence shows that our proposed approach outperforms cointegration techniques that use a single criterion (e.g., stocks with the maximum market capitalization) in the asset selection.
Keywords: Index tracking; Stock selection; Cointegration; Deep neural network; Machine learning (search for similar items in EconPapers)
JEL-codes: C38 C45 G10 G11 (search for similar items in EconPapers)
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed
Downloads: (external link)
http://link.springer.com/10.1007/s11408-021-00391-7 Abstract (text/html)
Access to full text is restricted to subscribers.
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:kap:fmktpm:v:36:y:2022:i:1:d:10.1007_s11408-021-00391-7
Ordering information: This journal article can be ordered from
http://www.springer. ... nt/journal/11408/PS2
Access Statistics for this article
Financial Markets and Portfolio Management is currently edited by Manuel Ammann
More articles in Financial Markets and Portfolio Management from Springer, Swiss Society for Financial Market Research Contact information at EDIRC.
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().