<abstract xmlns="http://www.w3.org/1999/xhtml">Background: In the portfolio optimization area, most of the research is focused on insample portfolio optimization. One may ask a rational question of what the efficiency of the portfolio optimization strategy is and how to measure it.Objectives: The objective of the paper is to propose the approach to measuring the efficiency of the portfolio strategy based on the hypothesis inference methodology and considering a possible data snooping bias. The proposed approach is demonstrated on the Markowitz minimum variance model and the fuzzy probabilities minimum variance model.Methods/Approach: The proposed approach is based on a statistical test. The null hypothesis is that the analysed portfolio optimization strategy creates a portfolio randomly, while the alternative hypothesis is that an optimized portfolio is created in such a way that the risk of the portfolio is lowered.Results: It is found out that the analysed strategies indeed lower the risk of the portfolio during the market’s decline in the global financial crisis and in 94% of the time in the 2009-2019 period.Conclusions: The analysed strategies lower the risk of the portfolio in the out-of-sample period.</abstract>

Background: In the portfolio optimization area, most of the research is focused on insample portfolio optimization. One may ask a rational question of what the efficiency of the portfolio optimization strategy is and how to measure it.Objectives: The objective of the paper is to propose the approach to measuring the efficiency of the portfolio strategy based on the hypothesis inference methodology and considering a possible data snooping bias. The proposed approach is demonstrated on the Markowitz minimum variance model and the fuzzy probabilities minimum variance model.Methods/Approach: The proposed approach is based on a statistical test. The null hypothesis is that the analysed portfolio optimization strategy creates a portfolio randomly, while the alternative hypothesis is that an optimized portfolio is created in such a way that the risk of the portfolio is lowered.Results: It is found out that the analysed strategies indeed lower the risk of the portfolio during the market’s decline in the global financial crisis and in 94% of the time in the 2009-2019 period.Conclusions: The analysed strategies lower the risk of the portfolio in the out-of-sample period.

Portfolio Optimization Efficiency Test Considering Data Snooping Bias

Business Systems Research Journal

This work is licensed under the Creative Commons Attribution 4.0 International License.

{"article-title":"Portfolio Optimization Efficiency Test Considering Data Snooping Bias"}

Background: In the portfolio optimization area, most of the research is focused on insample portfolio optimization. One may ask a rational question of what the...

Portfolio Optimization Efficiency Test Considering Data Snooping Bias

Publié en ligne: 29 oct. 2020

Pages: 73 - 85

Reçu: 31 janv. 2020

Accepté: 06 juil. 2020

DOI: https://doi.org/10.2478/bsrj-2020-0016

Mots clés
data snooping bias, financial crisis, hypothesis test, minimum-risk portfolio, portfolio optimization

© 2020 Aleš Kresta et al., published by Sciendo

This work is licensed under the Creative Commons Attribution 4.0 International License.

Portfolio Optimization Efficiency Test Considering Data Snooping Bias

Publié en ligne: 29 oct. 2020

Pages: 73 - 85

Reçu: 31 janv. 2020

Accepté: 06 juil. 2020

DOI: https://doi.org/10.2478/bsrj-2020-0016

Mots clésdata snooping bias, financial crisis, hypothesis test, minimum-risk portfolio, portfolio optimization

© 2020 Aleš Kresta et al., published by Sciendo

This work is licensed under the Creative Commons Attribution 4.0 International License.

Mots clés
data snooping bias, financial crisis, hypothesis test, minimum-risk portfolio, portfolio optimization