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A rank-based approach in portfolio asset allocation

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  • Cemile Özgür
  • Vedat Sarikovanlik

Abstract

We propose a novel rank-based approach (RBA) that can be applied in portfolio allocation tasks. The proposed approach penalizes downside deviations below zero by using the sign, magnitude, and distributional rank of assets. Performance of RBA is compared with the equally weighted, traditional mean-variance and more recently proposed portfolio strategies including improved estimators for covariance misspecification. Overall, applied various performance metrics, in particular, return-per-unit of risk measures provide convincing evidence of enhanced performance in favour of RBA portfolios.

Suggested Citation

  • Cemile Özgür & Vedat Sarikovanlik, 2024. "A rank-based approach in portfolio asset allocation," Applied Economics Letters, Taylor & Francis Journals, vol. 31(20), pages 2223-2227, November.
    • Handle: RePEc:taf:apeclt:v:31:y:2024:i:20:p:2223-2227
    DOI: 10.1080/13504851.2023.2212961
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