Application of Portfolio Optimization to Achieve Persistent Time Series

Adam Zlatniczki () and Andras Telcs ()
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Adam Zlatniczki: Budapest University of Technology and Economics
Andras Telcs: Budapest University of Technology and Economics

Journal of Optimization Theory and Applications, 2024, vol. 201, issue 2, No 16, 932-954

Abstract: Abstract The greater the persistence in a financial time series, the more predictable it becomes, allowing for the development of more effective investment strategies. Desirable attributes for financial portfolios include persistence, smoothness, long memory, and higher auto-correlation. We argue that these properties can be achieved by adjusting the composition weights of the portfolio. Considering the fractal nature of typical financial time series, the fractal dimension emerges as a natural metric to gauge the smoothness of the portfolio trajectory. Specifically, the Hurst exponent is designed for measuring the persistence of time series. In this paper, we introduce an optimization method inspired by the Hurst exponent and signal processing to mitigate the irregularities in the portfolio trajectory. We illustrate the effectiveness of this approach using real data from an S &P100 dataset.

Keywords: Portfolio optimization; Hurst exponent; Signal-to-noise ratio; SOCP; QP; Geometric Brownian motion; 60H30; 62P05; 90C90 (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1007/s10957-024-02426-1

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