Designing an Optimal Portfolio for Iran's Stock Market with Genetic Algorithm using Neural Network Prediction of Risk and Return Stocks

Masoud Fekri and Babak Barazandeh

Papers from arXiv.org

Abstract: Optimal capital allocation between different assets is an important financial problem, which is generally framed as the portfolio optimization problem. General models include the single-period and multi-period cases. The traditional Mean-Variance model introduced by Harry Markowitz has been the basis of many models used to solve the portfolio optimization problem. The overall goal is to achieve the highest return and lowest risk in portfolio optimization problems. In this paper, we will present an optimal portfolio based the Markowitz Mean-Variance-Skewness with weight constraints model for short-term investment opportunities in Iran's stock market. We will use a neural network based predictor to predict the stock returns and measure the risk of stocks based on the prediction errors in the neural network. We will perform a series of experiments on our portfolio optimization model with the real data from Iran's stock market indices including Bank, Insurance, Investment, Petroleum Products and Chemicals indices. Finally, 8 different portfolios with low, medium and high risks for different type of investors (risk-averse or risk taker) using genetic algorithm will be designed and analyzed.

Date: 2019-02
New Economics Papers: this item is included in nep-cmp, nep-fmk, nep-rmg and nep-upt
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:1903.06632

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