IDEAS home Printed from https://ideas.repec.org/h/spr/isochp/978-3-319-61320-8_10.html
   My bibliography  Save this book chapter

Portfolio Optimization Using Modified Herfindahl Constraint

In: Handbook of Recent Advances in Commodity and Financial Modeling

Author

Listed:
  • Asmerilda Hitaj

    (University of Milano Bicocca)

  • Giovanni Zambruno

    (University of Milano Bicocca)

Abstract

Modern portfolio theory started with Markowitz (J Financ 7(1):77–91, 1952; Portfolio selection efficient diversification of investments. Wiley, New York, 1959). Early works developed necessary conditions on utility function that would result in mean-variance theory being optimal, see Tobin (Rev Econ Stud 25(2):65–86, 1958). Recently, considering the stylized facts of asset returns, mean-variance model has been extended to higher moments. Despite all, empirical evidence has shown that mean-variance model and its variants often yield overly concentrated portfolios. Portfolio diversification is still an open question. To avoid this problem different constraints have been introduced in the portfolio optimization procedure. In this paper we study from an empirical point of view the impact of imposing a constraint on the Modified Herfindahl index of the portfolio, in case of mean-variance and mean-variance-skewness optimization. We find that imposing a constraint on the level of the portfolio diversification leads to better out of sample performance and significant gains, despite the use of shrinkage estimators for moments and comoments, in particular when long estimation periods are considered.

Suggested Citation

  • Asmerilda Hitaj & Giovanni Zambruno, 2018. "Portfolio Optimization Using Modified Herfindahl Constraint," International Series in Operations Research & Management Science, in: Giorgio Consigli & Silvana Stefani & Giovanni Zambruno (ed.), Handbook of Recent Advances in Commodity and Financial Modeling, chapter 0, pages 211-239, Springer.
    • Handle: RePEc:spr:isochp:978-3-319-61320-8_10
    DOI: 10.1007/978-3-319-61320-8_10
    as

    Download full text from publisher

    To our knowledge, this item is not available for download. To find whether it is available, there are three options:
    1. Check below whether another version of this item is available online.
    2. Check on the provider's web page whether it is in fact available.
    3. Perform a search for a similarly titled item that would be available.

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Gian Paolo Clemente & Rosanna Grassi & Asmerilda Hitaj, 2022. "Smart network based portfolios," Annals of Operations Research, Springer, vol. 316(2), pages 1519-1541, September.
    2. Gian Paolo Clemente & Rosanna Grassi & Asmerilda Hitaj, 2019. "Smart network based portfolios," Papers 1907.01274, arXiv.org.
    3. Giorgio Consigli & Asmerilda Hitaj & Elisa Mastrogiacomo, 2019. "Portfolio choice under cumulative prospect theory: sensitivity analysis and an empirical study," Computational Management Science, Springer, vol. 16(1), pages 129-154, February.

    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:spr:isochp:978-3-319-61320-8_10. 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: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    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.