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A new asset allocation technique to reduce financial portfolio risk

Author

Listed:
  • Gino Gandolfi

    (Via J.F Kennedy)

  • Antonella Sabatini
  • Monica Rossolini

Abstract

The objective of this work is to illustrate an active portfolio management methodology reducing the risk of the portfolio through stabilization of returns, by applying the proportional, integral, derivative (PID) control on the pure portfolio return variable. Two portfolios are analyzed and their financial performance is compared: the PID methodology implementation yielding the experimental portfolio on one side, and its corresponding benchmark, the DJ Euro Stoxx 50 Index on the other side. The experimental portfolio is able to diminish the volatility, and in particular, to accomplish a smaller down side risk than its corresponding benchmark.

Suggested Citation

  • Gino Gandolfi & Antonella Sabatini & Monica Rossolini, 2011. "A new asset allocation technique to reduce financial portfolio risk," Journal of Asset Management, Palgrave Macmillan, vol. 12(6), pages 418-425, December.
    • Handle: RePEc:pal:assmgt:v:12:y:2011:i:6:d:10.1057_jam.2011.22
    DOI: 10.1057/jam.2011.22
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    References listed on IDEAS

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    1. Fama, Eugene F, 1970. "Efficient Capital Markets: A Review of Theory and Empirical Work," Journal of Finance, American Finance Association, vol. 25(2), pages 383-417, May.
    2. Gandolfi, G. & Sabatini, A. & Rossolini, M., 2007. "PID feedback controller used as a tactical asset allocation technique: The G.A.M. model," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 383(1), pages 71-78.
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