Asset allocation: new evidence through network approaches

Gian Paolo Clemente, Rosanna Grassi and Asmerilda Hitaj

Papers from arXiv.org

Abstract: The main contribution of the paper is to employ the financial market network as a useful tool to improve the portfolio selection process, where nodes indicate securities and edges capture the dependence structure of the system. Three different methods are proposed in order to extract the dependence structure between assets in a network context. Starting from this modified structure, we formulate and then we solve the asset allocation problem. We find that the portfolios obtained through a network-based approach are composed mainly of peripheral assets, which are poorly connected with the others. These portfolios, in the majority of cases, are characterized by an higher trade-off between performance and risk with respect to the traditional Global Minimum Variance (GMV) portfolio. Additionally, this methodology benefits of a graphical visualization of the selected portfolio directly over the graphic layout of the network, which helps in improving our understanding of the optimal strategy.

Date: 2018-10
New Economics Papers: this item is included in nep-rmg
References: View references in EconPapers View complete reference list from CitEc
Citations:

Published in Annals of Operations Research, 2019

Downloads: (external link)
http://arxiv.org/pdf/1810.09825 Latest version (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:1810.09825

Access Statistics for this paper

More papers in Papers from arXiv.org
Bibliographic data for series maintained by arXiv administrators ().