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Defensive online portfolio selection

Author

Listed:
  • Fabio Stella
  • Alfonso Ventura

Abstract

The class of defensive online portfolio selection algorithms, designed for finite investment horizon, is introduced. The game constantly rebalanced portfolio and the worst case game constantly rebalanced portfolio, are presented and theoretically analysed. The analysis exploits the rich set of mathematical tools available by means of the connection between universal portfolios and the game-theoretic framework. The empirical performance of the worst case game constantly rebalanced portfolio algorithm is analysed through numerical experiments concerning the FTSE 100, Nikkei 225, Nasdaq 100 and S&P500 stock markets for the time interval, from January 2007 to December 2009, which includes the credit crunch crisis from September 2008 to March 2009. The results emphasise the relevance of the proposed online investment algorithm which significantly outperformed the market index and the minimum variance Sharpe-Markowitz's portfolio.

Suggested Citation

  • Fabio Stella & Alfonso Ventura, 2011. "Defensive online portfolio selection," International Journal of Financial Markets and Derivatives, Inderscience Enterprises Ltd, vol. 2(1/2), pages 88-105.
  • Handle: RePEc:ids:ijfmkd:v:2:y:2011:i:1/2:p:88-105
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    References listed on IDEAS

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    1. repec:wsi:ijtafx:v:05:y:2002:i:06:n:s0219024902001547 is not listed on IDEAS
    2. Igor V. Evstigneev & Klaus Reiner Schenk-Hoppé, 2002. "From Rags To Riches: On Constant Proportions Investment Strategies," International Journal of Theoretical and Applied Finance (IJTAF), World Scientific Publishing Co. Pte. Ltd., vol. 5(06), pages 563-573.
    3. Gaivoronski, A & Stella, F, 2000. "Nonstationary Optimization Approach for Finding Universal Portfolios," MPRA Paper 21913, University Library of Munich, Germany.
    4. Gaivoronski, Alexei A. & Stella, Fabio, 2003. "On-line portfolio selection using stochastic programming," Journal of Economic Dynamics and Control, Elsevier, vol. 27(6), pages 1013-1043, April.
    5. Thomas M. Cover, 1991. "Universal Portfolios," Mathematical Finance, Wiley Blackwell, vol. 1(1), pages 1-29.
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    More about this item

    Keywords

    constant rebalanced portfolio; CRP; online investment; portfolio selection; defensive forecasting; finite investment horizon; game theory; stock markets.;

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • C0 - Mathematical and Quantitative Methods - - General
    • D90 - Microeconomics - - Micro-Based Behavioral Economics - - - General
    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis

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