Stock Portfolio Optimization on JII Index using Multi-Objective Mean-Absolute Deviation-Entropy
Abstract views: 328
,
pdf downloads: 287
Abstract
Stock portfolio optimization is allocating stock assets from investors to manage return and risk. Investors need a high return portfolio with a given level of risk, and portfolio optimization can help to find the feasible one. The data used for this problem are stocks listed on the Jakarta Islamic Index (JII). The portfolio optimization methods are applied Mean-Absolute Deviation (MAD) and Entropy. MAD is used because it can solve the portfolio optimization problem for the nonnormal distribution of data. Meanwhile, entropy is used because it can better diversify the weight of stocks in the MAD portfolio. Experiment results in this study show that MAD-Entropy and Equal Weight portfolio outperform the MAD portfolio in Sharpe Ratio and Performance Ratio. MAD only excels in one period, influenced by a stock that has a fantastic return in a certain period.
Downloads
References
[1] Y. Sun, G. Aw, K. L. Teo, Y. Zhu, and X. Wang, “Multi-period portfolio optimization under probabilistic risk measure,†Finance Research Letters,
vol. 18, pp. 60–66, 2016.
[2] Y. Sun, G. Aw, R. Loxton, and K. L. Teo, “Chance-constrained optimization for pension fund portfolios in the presence of default risk,†European
Journal of Operational Research, vol. 256, no. 1, pp. 205–214, 2017.
[3] W. S. Lam, W. H. Lam, and S. H. Jaaman, “Portfolio optimization with a mean–absolute deviation–entropy multi-objective model,†Entropy, vol. 23,
no. 10, p. 1266, 2021.
[4] H. Konno and T. Koshizuka, “Mean-absolute deviation model,†Iie Transactions, vol. 37, no. 10, pp. 893–900, 2005.
[5] M. L. Erdas ̧, “Developing a portfolio optimization model based on linear programming under certain constraints: An application on borsa istanbul 30 index,†Tesam Akademi, vol. 7, no. 1, pp. 115–141, 2020.
[6] B. Li and R. Zhang, “A new mean-variance-entropy model for uncertain portfolio optimization with liquidity and diversification,†Chaos, Solitons &
Fractals, vol. 146, p. 110842, 2021.
[7] S. Lu, N. Zhang, and L. Jia, “A multiobjective multiperiod mean-semientropy-skewness model for uncertain portfolio selection,†Applied Intelligence,
vol. 51, no. 8, pp. 5233–5258, 2021.
[8] G. Kasenbacher, J. Lee, and K. Euchukanonchai, “Mean-variance vs. mean-absolute deviation: A performance comparison of portfolio optimization
models,†2017.
[9] M. Aksaraylı and O. Pala, “A polynomial goal programming model for portfolio optimization based on entropy and higher moments,†Expert Systems with Applications, vol. 94, pp. 185–192, 2018.
[10] C. E. Shannon, “A mathematical theory of communication,†The Bell system technical journal, vol. 27, no. 3, pp. 379–423, 1948.
[11] B. Naqvi, N. Mirza, W. A. Naqvi, and S. Rizvi, “Portfolio optimisation with higher moments of risk at the pakistan stock exchange,†Economic
research-Ekonomska istraˇzivanja, vol. 30, no. 1, pp. 1594–1610, 2017.
This work is licensed under a Creative Commons Attribution 4.0 International License.
Manuscript submitted to IJoICT has to be an original work of the author(s), contains no element of plagiarism, and has never been published or is not being considered for publication in other journals. Author(s) shall agree to assign all copyright of published article to IJoICT. Requests related to future re-use and re-publication of major or substantial parts of the article must be consulted with the editors of IJoICT.
.png)
.jpg)
