Switching portfolios.

Y. Singer

Research output: Contribution to journalArticle

31 Scopus citations

Abstract

A constant rebalanced portfolio is an asset allocation algorithm which keeps the same distribution of wealth among a set of assets along a period of time. Recently, there has been work on on-line portfolio selection algorithms which are competitive with the best constant rebalanced portfolio determined in hindsight (Cover, 1991; Helmbold et al., 1996; Cover and Ordentlich, 1996). By their nature, these algorithms employ the assumption that high returns can be achieved using a fixed asset allocation strategy. However, stock markets are far from being stationary and in many cases the wealth achieved by a constant rebalanced portfolio is much smaller than the wealth achieved by an ad hoc investment strategy that adapts to changes in the market. In this paper we present an efficient portfolio selection algorithm that is able to track a changing market. We also describe a simple extension of the algorithm for the case of a general transaction cost, including the transactions cost models recently investigated in (Blum and Kalai, 1997). We provide a simple analysis of the competitiveness of the algorithm and check its performance on real stock data from the New York Stock Exchange accumulated during a 22-year period. On this data, our algorithm outperforms all the algorithms referenced above, with and without transaction costs.

Original languageEnglish (US)
Pages (from-to)445-455
Number of pages11
JournalInternational journal of neural systems
Volume8
Issue number4
DOIs
StatePublished - Aug 1997
Externally publishedYes

All Science Journal Classification (ASJC) codes

  • Computer Networks and Communications

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