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/lp/de-gruyter/portfolio-optimization-efficiency-test-considering-data-snooping-bias-aeojDZtl3F
- Publisher
- de Gruyter
- Copyright
- © 2020 Aleš Kresta et al., published by Sciendo
- ISSN
- 1847-9375
- eISSN
- 1847-9375
- DOI
- 10.2478/bsrj-2020-0016
- Publisher site
- See Article on Publisher Site
Abstract
AbstractBackground: 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.
Journal
Business Systems Research Journal – de Gruyter
Published: Oct 1, 2020