Original scientific paper
https://doi.org/10.2478/bsrj-2020-0016
Portfolio Optimization Efficiency Test Considering Data Snooping Bias
Aleš Kresta
orcid.org/0000-0001-8621-3493
; VSB – Technical University of Ostrava, Faculty of Economics, Czech Republic
Anlan Wang
; VSB – Technical University of Ostrava, Faculty of Economics, Czech Republic
Abstract
Background: In the portfolio optimization area, most of the research is focused on in-sample portfolio optimization. One may ask a rational question of what the efficiency of the portfolio optimization strategy is and how to measure it. Objectives: The objective of the paper is to propose the approach to measuring the efficiency of the portfolio strategy based on the hypothesis inference methodology and considering a possible data snooping bias. The proposed approach is demonstrated on the Markowitz minimum variance model and the fuzzy probabilities minimum variance model. Methods/Approach: The proposed approach is based on a statistical test. The null hypothesis is that the analysed portfolio optimization strategy creates a portfolio randomly, while the alternative hypothesis is that an optimized portfolio is created in such a way that the risk of the portfolio is lowered. Results: It is found out that the analysed strategies indeed lower the risk of the portfolio during the market’s decline in the global financial crisis and in 94% of the time in the 2009-2019 period. Conclusions: The analysed strategies lower the risk of the portfolio in the out-of-sample period.
Keywords
data snooping bias; financial crisis; hypothesis test; minimum-risk portfolio; portfolio optimization
Hrčak ID:
244810
URI
Publication date:
13.10.2020.
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