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Using Intrinsic Time In Portfolio Optimization

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  • B. Vasilyev

    (Financial University)

Abstract

The concept of intrinsic time was introduced in Mandelbrot’s paper circa 1963 and further developed in discussion paper by Muller et al. (1993). As reported by Didenko et al. (2014), there are some evidencesthat sampling price series in volume domain results in almost normal returns, which could help to overcome some common issues in portfolio optimisation. First, we briefly survey flaws of classic approach to portfolio optimisation, then we test for statistical properties of intrinsic-time sampled return series, theorize on how intrinsic time could help in handling issues of portfolio optimisation, and then empirically test our guesses. We show that using intrinsic time helps in overcoming such flaws of Modern Portfolio Theory as poor diversification and reliance on normality of returns. Концепция внутреннего времени была введена в работе Mandelbrot 1963 года и далее развита в докладе Muller с соавторами (1993). Недавнее исследование Диденко с соавторами (2014) предоставило ряд свидетельств о том, что свертка ценовых рядов по объемам приводит к квази-нормальности доходностей активов. Этот феномен можно использовать в портфельной оптимизации.Наша работа начинается с краткого обзора основных проблем современной портфельной теории. Далее мы тестируем нормальность рядов при различных параметрах свертки по объемам и эмпирически тестируем пригодность такой свертки в портфельной оптимизации. Наши результаты показывают, что сверткапо объемам позволяет преодолеть такие недостатки СПТ, как слабая диверсификация и предположение о нормальности доходностей.

Suggested Citation

  • B. Vasilyev, 2015. "Using Intrinsic Time In Portfolio Optimization," Review of Business and Economics Studies // Review of Business and Economics Studies, Финансовый Университет // Financial University, vol. 3(2), pages 7-14.
    • Handle: RePEc:scn:00rbes:y:2015:i:2:p:7-14
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    References listed on IDEAS

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