Optimal diversification, stochastic dominance, and sampling error

IF 1.1 Q4 BUSINESS
Mourad Mroua, Fathi Abid, W. Wong
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引用次数: 5

Abstract

Purpose - The purpose of this paper is to contribute to the literature in three ways: first, the authors investigate the impact of the sampling errors on optimal portfolio weights and on financial investment decision. Second, the authors advance a comparative analysis between various domestic and international diversification strategies to define a stochastic optimal choice. Third, the authors propose a new methodology combining the re-sampling method, stochastic optimization algorithm, and nonparametric stochastic dominance (SD) approach to analyze a stochastic optimal portfolio choice for risk-averse American investors who care about benefits of domestic diversification relative to international diversification. The authors propose a new portfolio optimization model involving SD constraints on the portfolio return rate. The authors define a portfolio with return dominating the benchmark portfolio return in the second-order stochastic dominance (SSD) and having maximum expected return. The authors combine re-sampling procedure and stochastic optimization to establish more flexibility in the investment decision rule. Design/methodology/approach - The authors apply the re-sampling procedure to consider the sampling error in the optimization process. The authors try to resolve the problem of the stochastic optimal investment strategy choice using the nonparametric SD test by Linton Findings - First, the authors find that reducing sampling error increases the dominance relationships between different portfolios, which, in turn, alters portfolio investment decisions. Though international diversification is preferred in some cases, the study’s results show that for risk-averse US investors, in general, there is no difference between the diversification strategies; this implies that there is no increase in the expected utility of international diversification for the period before and after the 2007-2008 financial crisis. Nevertheless, the authors find that stochastic diversification in domestic, global, and Europe, Australasia, and Far East markets delivers better risk returns for the US risk averters during the crisis period. Originality/value - The originality of the idea in this paper is to introduce a new methodology combining the concept of portfolio re-sampling, stochastic portfolio optimization with SSD constraints, and the nonparametric SD test by Linton
最优多样化、随机优势和抽样误差
本文的目的是在三个方面对文献做出贡献:首先,作者研究了抽样误差对最优投资组合权重和金融投资决策的影响。其次,通过对国内外各种多元化策略的比较分析,确定了一个随机最优选择。第三,作者提出了一种新的方法,结合重新抽样方法、随机优化算法和非参数随机优势(SD)方法来分析风险厌恶型美国投资者的随机最优投资组合选择,这些投资者关心国内分散投资相对于国际分散投资的收益。本文提出了一个包含SD约束的投资组合优化模型。在二阶随机优势条件下,定义了期望收益最大且收益支配基准收益的投资组合。将重新抽样和随机优化相结合,使投资决策规则具有更大的灵活性。设计/方法/方法-作者应用重新抽样程序来考虑优化过程中的抽样误差。作者试图利用Linton Findings的非参数SD检验解决随机最优投资策略选择问题。首先,作者发现减少抽样误差增加了不同投资组合之间的优势关系,从而改变了组合投资决策。虽然国际多元化在某些情况下更受青睐,但研究结果表明,对于厌恶风险的美国投资者来说,总体而言,多元化策略之间没有差异;这意味着,在2007-2008年金融危机前后,国际多元化的预期效用没有增加。然而,作者发现,在危机期间,国内、全球以及欧洲、澳大拉西亚和远东市场的随机多样化为美国风险规避者提供了更好的风险回报。独创性/价值——本文的独创性在于引入了一种新的方法,该方法结合了投资组合重新抽样的概念、带有SSD约束的随机投资组合优化以及Linton的非参数SD检验
本文章由计算机程序翻译,如有差异,请以英文原文为准。
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