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- Title
A New Approach to Optimal Investment Portfolio Management.
- Authors
Nedeltcheva, Galia N.; Ragsdell, Kenneth M.
- Abstract
In this paper the authors show that historical data can be used to estimate three crucial parameters of the allocation model, i.e. not only maximizing expected return or minimizing expected risk, and maximizing the difference of expected return and expected risk, but also maximizing the portfolio stability. Stable portfolios consistently earn desired return on investment and appreciate in value irrespective of external economic environment, market conditions and investor sentiments. The present work discussed the application of the Taguchi System of Quality Engineering in order to show how portfolio stability can be measured by Signal-to-Noise ratio of the portfolio value. A stable portfolio exhibits consistent gain in the S/N ratio. The S/N ratio can be used instead of expected portfolio return as an objective optimization function as presented as shown in an example. Further, it is presented a Quality Engineering (QE) optimization portfolio formulation and the results from the portfolio management methodology that combines the principles of QE, Value Investing and forecasting show that it could beat the average market return with a huge margin.
- Subjects
PORTFOLIO management (Investments); INVESTMENTS; EXPECTED returns; SIGNAL-to-noise ratio; MARGINS (Futures trading)
- Publication
International Journal of Global Management Studies, 2010, Vol 2, Issue 2, p16
- ISSN
1945-3876
- Publication type
Article