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Seeking a Better Portfolio with Industry Recommendations

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  • Sung Jun Park
  • Taehyun Kim

Abstract

This paper provides novel evidence that investors can build a better performing portfolio by exploiting industry level consensus recommendations. A minimum variance portfolio, combined with consensus recommendations, yields a higher Sharpe ratio and certainty equivalent returns. A minimum variance portfolio with no short-selling constraint consistently outperforms an equally weighted portfolio when exploiting consensus recommendations, which is an innovation compared to the existing literature. Our results suggest that sell-side analysts and brokers provide valuable information in the financial market and we benefit from incorporating the information in the portfolio optimisation.

Suggested Citation

  • Sung Jun Park & Taehyun Kim, 2019. "Seeking a Better Portfolio with Industry Recommendations," Global Economic Review, Taylor & Francis Journals, vol. 48(1), pages 46-62, January.
    • Handle: RePEc:taf:glecrv:v:48:y:2019:i:1:p:46-62
    DOI: 10.1080/1226508X.2018.1553112
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