The effect of market conditions on forward looking portfolio performance

Ghimire, Binam, Perrott, Leigh and Karki, Dipesh (2016) The effect of market conditions on forward looking portfolio performance. Journal of investment strategies, 5 (4). pp. 51-85. ISSN 2047-1238

[img] Text
Binam_Leigh_Dipesh_ForwardLookingApproach.pdf - Submitted Version
Restricted to Repository staff only

Download (940kB) | Request a copy
Official URL: http://dx.doi.org/10.21314/JOIS.2016.073

Abstract

This paper applies a forward looking approach to the minimum variance portfolio optimisation problem for a selection of 100 stocks. The purpose is to determine which market conditions favour this strategy of using option implied information. Out-of-sample volatility, Sharpe ratio, and certainty equivalent return is measured against eight benchmarks, including the equal weighted 1/N and minimum variance portfolio based on historical estimates. Equivalent or superior performance is evident in terms of reduced volatility and higher certainty equivalent return. However, strict outperformance of the best benchmarks is only seen when option-to-stock volume ratios are high and information signals in the options market are strongest.

Item Type: Article
Uncontrolled Keywords: shrinkage, minimum variance portfolio, volatility
Subjects: G100 Mathematics
N300 Finance
Department: Faculties > Business and Law > Newcastle Business School > Accounting and Finance
Depositing User: Binam Ghimire
Date Deposited: 19 Oct 2016 11:20
Last Modified: 10 May 2017 10:17
URI: http://nrl.northumbria.ac.uk/id/eprint/25943

Actions (login required)

View Item View Item

Downloads

Downloads per month over past year

View more statistics


Policies: NRL Policies | NRL University Deposit Policy | NRL Deposit Licence