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Investment strategy due to the minimization of portfolio noise level by observations of coarse-grained entropy

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  • Krzysztof Urbanowicz
  • Janusz A. Holyst

Abstract

Using a recently developed method of noise level estimation that makes use of properties of the coarse grained-entropy we have analyzed the noise level for the Dow Jones index and a few stocks from the New York Stock Exchange. We have found that the noise level ranges from 40 to 80 percent of the signal variance. The condition of a minimal noise level has been applied to construct optimal portfolios from selected shares. We show that implementation of a corresponding threshold investment strategy leads to positive returns for historical data.

Suggested Citation

  • Krzysztof Urbanowicz & Janusz A. Holyst, 2004. "Investment strategy due to the minimization of portfolio noise level by observations of coarse-grained entropy," Papers cond-mat/0412754, arXiv.org.
    • Handle: RePEc:arx:papers:cond-mat/0412754
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    Cited by:

    1. Çoban, Gürsan & Büyüklü, Ali H. & Das, Atin, 2012. "A linearization based non-iterative approach to measure the gaussian noise level for chaotic time series," Chaos, Solitons & Fractals, Elsevier, vol. 45(3), pages 266-278.

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