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Asset allocation and stock selection: Evidence from static and dynamic strategies in Turkish markets

Author

Listed:
  • Tolgahan YILMAZ

    (Yeditepe Üniversitesi)

  • Sema DUBE

    (Yeditepe Üniversitesi)

Abstract

We study stock-picking versus asset allocation decisions and static versus dynamic strategies for Turkish markets, from October 2007 to March 2012. We find portfolio performance results to be sensitive to extant conditions such as an asset class dominating others, and thresholds and constraints imposed to avoid over-concentration. Dynamic core-satellite strategies using the Sharpe Ratio optimizer minimized the downside risk and improved portfolio performance as compared to investing only in equities or in portfolios constructed by broad asset classes based solely on asset allocation, when the threshold parameters were determined dynamically. The second best portfolio was the naively diversified three-asset class portfolio. Confusion regarding the efficacy of strategies may arise due to the fact that optimizations or naïve allocations over restricted asset classes may actually worsen risk-adjusted performance; and we could either naïvely diversify over all asset classes, or we could dynamically optimize over all major asset classes and individual stocks

Suggested Citation

  • Tolgahan YILMAZ & Sema DUBE, 2014. "Asset allocation and stock selection: Evidence from static and dynamic strategies in Turkish markets," Iktisat Isletme ve Finans, Bilgesel Yayincilik, vol. 29(344), pages 73-94.
    • Handle: RePEc:iif:iifjrn:v:29:y:2014:i:344:p:73-94
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    Cited by:

    1. Azra Zaimovic & Adna Omanovic & Almira Arnaut-Berilo, 2021. "How Many Stocks Are Sufficient for Equity Portfolio Diversification? A Review of the Literature," JRFM, MDPI, vol. 14(11), pages 1-30, November.

    More about this item

    Keywords

    Asset allocation; Stock picking; Diversification; Dynamic optimization; Coresatellite.;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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