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Portfolio Optimization Using Mean-Semi Variance approach with Artificial Neural Networks: Empirical Evidence from Pakistan

Author

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  • Manzoor, Alia
  • Nosheen, Safia

Abstract

Purpose: The challenge of managing a portfolio effectively is allocating capital among numerous stock holdings to achieve maximum profit. Therefore, the purpose of this study is to guide investors in developing optimal portfolios in the stock market of Pakistan.Design/Methodology/Approach: To pick and optimize a portfolio in the most effective way possible, we used the daily closing stock prices of a sample of listed firms at the Pakistan stock exchange. The study applied the mean semi-variance approach and compared the performance of portfolios with equally weighted portfolios under artificial neural networks and historical-based return estimation in Pakistan.Findings: The result shows that artificial neural network-based estimation of the expected return vector has outperformed the historical return estimation under mean semi-variance portfolio optimization and constrained mean semi-variance portfolios based on the Sharp ratio in Pakistan.Implications/Originality/Value: The study suggests that investors, fund managers, and portfolio analysts should focus on the more sophisticated neural network-based choice for the development of portfolios in the equity market of Pakistan.&

Suggested Citation

  • Manzoor, Alia & Nosheen, Safia, 2022. "Portfolio Optimization Using Mean-Semi Variance approach with Artificial Neural Networks: Empirical Evidence from Pakistan," Journal of Accounting and Finance in Emerging Economies, CSRC Publishing, Center for Sustainability Research and Consultancy Pakistan, vol. 8(2), pages 307-318, June.
    • Handle: RePEc:src:jafeec:v:8:y:2022:i:2:p:307-318
    DOI: http://doi.org/10.26710/jafee.v8i2.2364
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