Using past returns to form optimized portfolios: Do they provide value over simple domestic or global investment strategies

Thumbnail Image

URL

Journal Title

Journal ISSN

Volume Title

School of Business | Bachelor's thesis
Electronic archive copy is available locally at the Harald Herlin Learning Centre. The staff of Aalto University has access to the electronic bachelor's theses by logging into Aaltodoc with their personal Aalto user ID. Read more about the availability of the bachelor's theses.

Authors

Date

2021

Department

Rahoituksen laitos

Major/Subject

Mcode

Degree programme

Rahoitus

Language

en

Pages

22 + 3

Series

Abstract

This study examines the results of optimizing investment strategies compared to simple domestic and global investment strategies. Past returns are used to construct minimum variance, maximum Sharpe ratio and maximum return portfolio for each year. The weights of the optimal portfolios are used in the following 12 months. The results show that two of the three optimized portfolios work fairly well. The maximum Sharpe ratio portfolio has the highest cumulative return and the minimum variance portfolio has the smallest variance from 2004 to 2021. These two optimized portfolios have provided value over simple domestic investing. But the portfolios have not provided value over simple global investing. Even though the optimized portfolios have fairly good results, they have not produced statistically significant alphas using the Fama-French 3 factor model. Trading costs are also not taken into account, which would again most likely decrease the value of the optimizing strategies over more simple strategies.

Description

Thesis advisor

Lof, Matthijs

Keywords

minimum variance, maximum sharpe ratio, maximum return, optimized portfolios, stock return correlations

Other note

Citation

Permanent link to this item

https://urn.fi/URN:NBN:fi:aalto-202208285030

Collections

[kand] Kauppakorkeakoulu / BIZ