The Mixture of Fundamental Indexing and Minimum Semi-variance Portfolio Selection

ZHANG Peng; LI Xinyin; ZENG Yongquan

doi:10.6054/j.jscnun.2021047

Journal of South China Normal University (Natural Science Edition) > 2021 > 53(3): 93-101. > DOI: 10.6054/j.jscnun.2021047

ZHANG Peng, LI Xinyin, ZENG Yongquan. The Mixture of Fundamental Indexing and Minimum Semi-variance Portfolio Selection[J]. Journal of South China Normal University (Natural Science Edition), 2021, 53(3): 93-101. DOI: 10.6054/j.jscnun.2021047

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The Mixture of Fundamental Indexing and Minimum Semi-variance Portfolio Selection

1.
School of Economics and Management, South China Normal University, Guangzhou 510006, China
2.
College of Humanities and Social Sciences, Zhongkai University of Agriculture and Engineering, Guangzhou 510225, China

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Received Date: October 25, 2020
Available Online: July 05, 2021

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In order to overcome the limitation of variance in distinguishing income and loss and solve the problem caused by ignoring the fundamentals in MV model, a mixture of Fundamental Indexing and minimum semi-variance portfolio ("FI-semiv"model), taking into consideration 1- and 2-norm transaction costs respectively and aiming to maximize the expected utility of investors, is proposed and solved with the pivoting algorithm. The model is a convex quadratic programming problem with linear equality and inequality constraints. Based on the "rolling sample" approach, the out-of-sample sharp ratios of different models are compared. It turns out that the sharp ratio of the FI-semiv portfolio has been effectively improved, which means that the portfolio is less risky and more efficient.

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