Selection of balanced portfolios to track the main properties of a large market

Donatien Tafin Djoko and Yves Till�

Quantitative Finance, 2015, vol. 15, issue 2, 359-370

Abstract: Index-based investment products are becoming increasingly popular among passive managers. So far, empirical studies have focused on complex heuristic-related optimization techniques. In this article, we adopt a different perspective and apply a survey sampling framework in the context of stock market tracking. We describe a novel and automatic method that enables us to construct a small portfolio to track the Total Market Capitalization (TMC). The constructed portfolio is randomly selected using a new method of balanced sampling. Empirical studies are performed on constituents of the S&P500. Our findings suggest that balanced sampling portfolios can efficiently track a market.

Date: 2015
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DOI: 10.1080/14697688.2013.859389

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