Median-adaptive portfolios: a minimum criteria approach to asset allocation

Foteini Kyriazi (), Sophia Tarani () and Dimitrios D. Thomakos ()
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Foteini Kyriazi: Agricultural University of Athens
Sophia Tarani: National and Kapodistrian University of Athens
Dimitrios D. Thomakos: National and Kapodistrian University of Athens

Annals of Operations Research, 2025, vol. 353, issue 1, No 16, 377-400

Abstract: Abstract We propose a new class of adaptive portfolios for asset allocation, based on a one-parameter variation of the equally weighted portfolio and the use of the median-ranked asset. Our methodological contribution offers a simple way of performing, static or optimized, allocation of assets in portfolios of any dimension, thus easily circumventing the “curse of dimensionality”. Our results show that, even for a static selection of the parameter that defines our allocation, we obtain improved performance compared to the equally weighted benchmark in all the standard metrics. For the case of an optimized selection of the parameter we offer results from minimum variance optimization, that do require the estimation of the covariance matrix, but our approach can easily be adapted to other kinds of portfolio objective functions. This new class of portfolios can easily be added to, as a complement or substitute, to any existing portfolio allocation method.

Keywords: Adaptive portfolio; Asset allocation; Equally weighted portfolio; Minimum variance portfolio; One-parameter portfolio; Optimization; C10; C58; G10; G11; G12 (search for similar items in EconPapers)
Date: 2025
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DOI: 10.1007/s10479-023-05465-5

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