Several contributions in the literature argue that a significant in-sample risk reduction can be obtained by investing in a relatively small number of assets in an investment universe. Furthermore, selecting small portfolios seems to yield good out-of-sample performances in practice. This analysis provides further evidence that an appropriate preselection of the assets in a market can lead to an improvement in the portfolio performance. For preselection this paper investigates the effectiveness of a minimum variance approach and that of an innovative index (the new Altman Z-score) based on the creditworthiness of the companies. Different classes of portfolio models are examined on real-world data by applying both the minimum variance and the Z-score preselection methods. Preliminary results indicate that the new Altman Z-score preselection provides encouraging out-of-sample performances with respect to those obtained with the minimum variance approach.

Cesarone, F., Mango, F., Sabato, G. (2019). Z-score vs Markowitz preselection for constructing small portfolios. In Proceedings of FIDNES 2019.

Z-score vs Markowitz preselection for constructing small portfolios

Cesarone, Francesco
;
2019

Abstract

Several contributions in the literature argue that a significant in-sample risk reduction can be obtained by investing in a relatively small number of assets in an investment universe. Furthermore, selecting small portfolios seems to yield good out-of-sample performances in practice. This analysis provides further evidence that an appropriate preselection of the assets in a market can lead to an improvement in the portfolio performance. For preselection this paper investigates the effectiveness of a minimum variance approach and that of an innovative index (the new Altman Z-score) based on the creditworthiness of the companies. Different classes of portfolio models are examined on real-world data by applying both the minimum variance and the Z-score preselection methods. Preliminary results indicate that the new Altman Z-score preselection provides encouraging out-of-sample performances with respect to those obtained with the minimum variance approach.
Cesarone, F., Mango, F., Sabato, G. (2019). Z-score vs Markowitz preselection for constructing small portfolios. In Proceedings of FIDNES 2019.
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Utilizza questo identificativo per citare o creare un link a questo documento: http://hdl.handle.net/11590/367567
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