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Should you optimize your portfolio?: On portfolio optimization: The optimized strategy versus the naïve and market strategy on the Swedish stock market
Uppsala University, Disciplinary Domain of Humanities and Social Sciences, Faculty of Social Sciences, Department of Business Studies.
2014 (English)Independent thesis Basic level (degree of Bachelor), 180 HE creditsStudent thesis
Abstract [en]

In this paper, I evaluate the out-of-sample performance of the portfolio optimizer relative to the naïve and market strategy on the Swedish stock market from January 1998 to December 2012. Recent studies suggest that simpler strategies, such as the naïve strategy, outperforms optimized strategies and that they should be implemented in the absence of better estimation models. Of the 12 strategies I evaluate, 11 of them significantly outperform both benchmark strategies in terms of Sharpe ratio. I find that the no-short-sales constrained minimum-variance strategy is preferred over the mean-variance strategy, and that the historical sample estimator creates better minimum-variance portfolios than the single-factor model and the three-factor model. My results suggest that there are considerable gains to optimization in terms of risk reduction and return in the context of portfolio selection.

Place, publisher, year, edition, pages
2014. , 32 p.
Keyword [en]
optimization, portfolio selection, portfolio strategy, estimation models, Sharpe ratio
National Category
Business Administration
Identifiers
URN: urn:nbn:se:uu:diva-218024OAI: oai:DiVA.org:uu-218024DiVA: diva2:694576
Subject / course
Business Studies
Educational program
Ekonomie kandidatprogrammet
Supervisors
Available from: 2014-02-07 Created: 2014-02-06 Last updated: 2014-02-07Bibliographically approved

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CiteExportLink to record
Permanent link

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Cite
Citation style
  • apa
  • ieee
  • modern-language-association-8th-edition
  • vancouver
  • Other style
More styles
Language
  • de-DE
  • en-GB
  • en-US
  • fi-FI
  • nn-NO
  • nn-NB
  • sv-SE
  • Other locale
More languages
Output format
  • html
  • text
  • asciidoc
  • rtf