<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

Data publikacji: 29 paź 2020

Zakres stron: 73 - 85

Otrzymano: 31 sty 2020

Przyjęty: 06 lip 2020

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

Słowa kluczowe
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

Data publikacji: 29 paź 2020

Zakres stron: 73 - 85

Otrzymano: 31 sty 2020

Przyjęty: 06 lip 2020

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

Słowa kluczowedata 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.

Słowa kluczowe
data snooping bias, financial crisis, hypothesis test, minimum-risk portfolio, portfolio optimization