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Portfolio construction using bootstrapping neural networks: evidence from global stock market

Author

Listed:
  • Hsiao-Fen Hsiao

    (Minjiang University)

  • Jiang-Chuan Huang

    (Putian University)

  • Zheng-Wei Lin

    (National Yunlin University of Science and Technology)

Abstract

The study investigates the investment value of global stock markets by a portfolio construction method combined with bootstrapping neural network architecture. A residual sample will be generated from bootstrapping sample procedure and then incorporated into the estimation of the expected returns and the covariant matrix. The outputs are further processed by the traditional Markowitz optimization procedure. In order to examine the efficacy of the proposed approach, the illustrated case was compared with traditional Markowitz mean–variance analysis, as well as the James–Stein and minimum-variance estimators. From the empirical results, it indicated that this novel approach significantly outperforms most of benchmark models based on various risk-adjusted performance measures. It can be shown that this new approach has great promise for enhancing the estimation of the investment value by Markowitz mean–variance analysis in the global stock markets.

Suggested Citation

  • Hsiao-Fen Hsiao & Jiang-Chuan Huang & Zheng-Wei Lin, 2020. "Portfolio construction using bootstrapping neural networks: evidence from global stock market," Review of Derivatives Research, Springer, vol. 23(3), pages 227-247, October.
    • Handle: RePEc:kap:revdev:v:23:y:2020:i:3:d:10.1007_s11147-019-09163-y
    DOI: 10.1007/s11147-019-09163-y
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    References listed on IDEAS

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    Cited by:

    1. Thomas, Nisha Mary & Kashiramka, Smita & Yadav, Surendra Singh & Paul, Justin, 2022. "Role of emerging markets vis-à-vis frontier markets in improving portfolio diversification benefits," International Review of Economics & Finance, Elsevier, vol. 78(C), pages 95-121.

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    More about this item

    Keywords

    Bootstrap; Elman neural network; Portfolio construction; International diversification;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation

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