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Portfolio rebalancing model using multiple criteria

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  • Yu, Jing-Rung
  • Lee, Wen-Yi

Abstract

In order to achieve greater flexibility in portfolio selection, transaction cost, short selling and higher moments should be considered, and actual transactions should be reflected. In this paper, five portfolio rebalancing models, with consideration of transaction cost and consisting of some or all criteria, including risk, return, short selling, skewness, and kurtosis, are compared to determine the important design criteria for a portfolio model. Two examples are used to perform simulated transactions, and the results indicate that the investment strategy of 'buy and hold' does not produce better returns for all the portfolios in the first example, and the models with higher moments or adopting short selling strategy perform better while rebalancing in the second example.

Suggested Citation

  • Yu, Jing-Rung & Lee, Wen-Yi, 2011. "Portfolio rebalancing model using multiple criteria," European Journal of Operational Research, Elsevier, vol. 209(2), pages 166-175, March.
  • Handle: RePEc:eee:ejores:v:209:y:2011:i:2:p:166-175
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    References listed on IDEAS

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    Cited by:

    1. Constantin Zopounidis & Michael Doumpos, 2013. "Multicriteria decision systems for financial problems," TOP: An Official Journal of the Spanish Society of Statistics and Operations Research, Springer;Sociedad de Estadística e Investigación Operativa, vol. 21(2), pages 241-261, July.
    2. Gupta, Pankaj & Mittal, Garima & Mehlawat, Mukesh Kumar, 2013. "Expected value multiobjective portfolio rebalancing model with fuzzy parameters," Insurance: Mathematics and Economics, Elsevier, vol. 52(2), pages 190-203.
    3. Ben Ameur, H. & Prigent, J.L., 2014. "Portfolio insurance: Gap risk under conditional multiples," European Journal of Operational Research, Elsevier, vol. 236(1), pages 238-253.
    4. Tamiz, Mehrdad & Azmi, Rania A. & Jones, Dylan F., 2013. "On selecting portfolio of international mutual funds using goal programming with extended factors," European Journal of Operational Research, Elsevier, vol. 226(3), pages 560-576.
    5. repec:eee:ejores:v:262:y:2017:i:3:p:1164-1180 is not listed on IDEAS
    6. Adelgren, Nathan & Wiecek, Margaret M., 2016. "A two-phase algorithm for the multiparametric linear complementarity problem," European Journal of Operational Research, Elsevier, vol. 254(3), pages 715-738.
    7. Jing-Rung Yu & Wan-Jiun Paul Chiou & Jian-Hong Yang, 2017. "Diversification benefits of risk portfolio models: a case of Taiwan’s stock market," Review of Quantitative Finance and Accounting, Springer, vol. 48(2), pages 467-502, February.
    8. Yue, Wei & Wang, Yuping, 2017. "A new fuzzy multi-objective higher order moment portfolio selection model for diversified portfolios," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 465(C), pages 124-140.
    9. Yu, Jing-Rung & Chiou, Wan-Jiun Paul & Mu, Da-Ren, 2015. "A linearized value-at-risk model with transaction costs and short selling," European Journal of Operational Research, Elsevier, vol. 247(3), pages 872-878.
    10. Smimou, K., 2014. "International portfolio choice and political instability risk: A multi-objective approach," European Journal of Operational Research, Elsevier, vol. 234(2), pages 546-560.
    11. Zhang, Wei-Guo & Liu, Yong-Jun & Xu, Wei-Jun, 2012. "A possibilistic mean-semivariance-entropy model for multi-period portfolio selection with transaction costs," European Journal of Operational Research, Elsevier, vol. 222(2), pages 341-349.
    12. Paweł Wnuk Lipinski, 2013. "Portfolio selection models based on characteristics of return distributions," Working Papers 2013-14, Faculty of Economic Sciences, University of Warsaw.
    13. repec:eee:apmaco:v:256:y:2015:i:c:p:445-458 is not listed on IDEAS
    14. Woodside-Oriakhi, M. & Lucas, C. & Beasley, J.E., 2013. "Portfolio rebalancing with an investment horizon and transaction costs," Omega, Elsevier, vol. 41(2), pages 406-420.

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