Evaluation of strategy portfolios

Anlan Wang (), Aleš Kresta () and Tomáš Tichý ()
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Anlan Wang: VSB–Technical University of Ostrava
Aleš Kresta: VSB–Technical University of Ostrava
Tomáš Tichý: VSB–Technical University of Ostrava

Computational Management Science, 2024, vol. 21, issue 1, No 17, 27 pages

Abstract: Abstract People usually create a portfolio in order to diversify the risk coming from individual investments. To get a high yield with a good level of diversification, investors usually seek professional advice from portfolio managers. However, the true performance of an optimized portfolio usually depends on the correctness of the estimates of the distribution of future returns, which is often a matter of luck rather than skill. Thus, the optimization models may not be better than randomly selected portfolios. Our aim is to find how the so-called strategy portfolios, i.e., portfolios obtained by some decision optimized for a long-run horizon, perform compared to a benchmark, namely, a random investment, under specific market conditions. For this purpose, we evaluate several portfolio strategies over two periods of crisis: the subprime mortgage crisis and the Covid-19 pandemic, as well as run a moving window analysis over a longer horizon. In each case, the results are compared with the performance of random-weight portfolios. We find that if the strategy is minimization, the portfolios perform well; however, for the maximization of the objectives, the results are rather mixed.

Keywords: Portfolio optimization; Financial crisis; Random weights; Performance measure; Risk measure (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1007/s10287-023-00497-5

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