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Portfolio optimization and index tracking for the shipping stock and freight markets using evolutionary algorithms

Author

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  • Andriosopoulos, Kostas
  • Doumpos, Michael
  • Papapostolou, Nikos C.
  • Pouliasis, Panos K.

Abstract

This paper reproduces the performance of an international market capitalization shipping stock index and two physical shipping indexes by investing only in US stock portfolios. The index-tracking problem is addressed using the differential evolution algorithm and the genetic algorithm. Portfolios are constructed by a subset of stocks picked from the shipping or the Dow Jones Composite Average indexes. To test the performance of the heuristics, three different trading scenarios are examined: annually, quarterly and monthly rebalancing, accounting for transaction costs where necessary. Competing portfolios are also assessed through predictive ability tests. Overall, the proposed investment strategies carry less risk compared to the tracked benchmark indexes while providing investors the opportunity to efficiently replicate the performance of both the stock and physical shipping indexes in the most cost-effective way.

Suggested Citation

  • Andriosopoulos, Kostas & Doumpos, Michael & Papapostolou, Nikos C. & Pouliasis, Panos K., 2013. "Portfolio optimization and index tracking for the shipping stock and freight markets using evolutionary algorithms," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 52(C), pages 16-34.
    • Handle: RePEc:eee:transe:v:52:y:2013:i:c:p:16-34
    DOI: 10.1016/j.tre.2012.11.006
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    Cited by:

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    2. Dimitris Andriosopoulos & Michalis Doumpos & Panos M. Pardalos & Constantin Zopounidis, 2019. "Computational approaches and data analytics in financial services: A literature review," Journal of the Operational Research Society, Taylor & Francis Journals, vol. 70(10), pages 1581-1599, October.
    3. Lin, Arthur J. & Chang, Hai Yen & Hsiao, Jung Lieh, 2019. "Does the Baltic Dry Index drive volatility spillovers in the commodities, currency, or stock markets?," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 127(C), pages 265-283.
    4. K. Liagkouras & K. Metaxiotis, 2018. "A new efficiently encoded multiobjective algorithm for the solution of the cardinality constrained portfolio optimization problem," Annals of Operations Research, Springer, vol. 267(1), pages 281-319, August.
    5. Gong, Yuting & Li, Kevin X. & Chen, Shu-Ling & Shi, Wenming, 2020. "Contagion risk between the shipping freight and stock markets: Evidence from the recent US-China trade war," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 136(C).
    6. Doering, Jana & Kizys, Renatas & Juan, Angel A. & Fitó, Àngels & Polat, Onur, 2019. "Metaheuristics for rich portfolio optimisation and risk management: Current state and future trends," Operations Research Perspectives, Elsevier, vol. 6(C).
    7. Pouliasis, Panos K. & Papapostolou, Nikos C. & Kyriakou, Ioannis & Visvikis, Ilias D., 2018. "Shipping equity risk behavior and portfolio management," Transportation Research Part A: Policy and Practice, Elsevier, vol. 116(C), pages 178-200.
    8. Filippi, C. & Guastaroba, G. & Speranza, M.G., 2016. "A heuristic framework for the bi-objective enhanced index tracking problem," Omega, Elsevier, vol. 65(C), pages 122-137.
    9. Mhd Ruslan, Siti Marsila & Mokhtar, Kasypi, 2021. "Stock market volatility on shipping stock prices: GARCH models approach," The Journal of Economic Asymmetries, Elsevier, vol. 24(C).

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