IDEAS home Printed from https://ideas.repec.org/a/rsk/journ4/2161038.html
   My bibliography  Save this article

High-conviction equity portfolio optimization

Author

Listed:
  • Dominiek P. Crezée, Laurens A. P. Swinkels

Abstract

ABSTRACT We investigate the construction of well-diversified high-conviction equity portfolios using the portfolio diversification index (PDI). This paper is the first to investigate the out-of-sample properties of the PDI. Our research applies a novel portfolio selection algorithm to maximize the PDI of a portfolio of stocks in the Standard & Poor’s S&P 500 index over the period 2000–2009. We construct equally weighted, well-diversified portfolios consisting of 5 to 30 stocks, and compare these with randomly selected portfolios of the same number of stocks. Our results indicate that investors using our algorithm to maximize the PDI can improve the diversification of high-conviction equity portfolios. For example, a portfolio of 20 stocks constructed using the algorithm with the PDI behaves outof- sample as if it contains 10 independent stocks, ie, a PDI score of 10. This is a significant improvement over the PDI score of 7 that occurs with a randomly selected portfolio. Our research is robust with respect to the number of stocks in the investment portfolio and the time period under consideration.

Suggested Citation

Handle: RePEc:rsk:journ4:2161038
as

Download full text from publisher

File URL: https://www.risk.net/system/files/import/protected/digital_assets/10376/High_conviction_equity_portfolio_optimization.pdf
Download Restriction: no
---><---

More about this item

Statistics

Access and download statistics

Corrections

All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:rsk:journ4:2161038. See general information about how to correct material in RePEc.

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

We have no bibliographic references for this item. You can help adding them by using this form .

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Thomas Paine (email available below). General contact details of provider: https://www.risk.net/journal-of-risk .

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.