A rank-based approach in portfolio asset allocation

Özgür C., SARIKOVANLIK V.

Applied Economics Letters, 2023 (SSCI) identifier identifier

  • Yayın Türü: Makale / Tam Makale
  • Basım Tarihi: 2023
  • Doi Numarası: 10.1080/13504851.2023.2212961
  • Dergi Adı: Applied Economics Letters
  • Derginin Tarandığı İndeksler: Social Sciences Citation Index (SSCI), Scopus, IBZ Online, International Bibliography of Social Sciences, ABI/INFORM, Business Source Elite, Business Source Premier, CAB Abstracts, EconLit, Geobase, Public Affairs Index, Veterinary Science Database, DIALNET
  • Anahtar Kelimeler: maximum-diversification, Portfolio allocation, portfolio performance, rank-based approach
  • İstanbul Üniversitesi Adresli: Evet

Özet

We propose a novel rank-based approach (RBA) that can be applied in portfolio allocation tasks. The proposed approach penalizes downside deviations below zero by using the sign, magnitude, and distributional rank of assets. Performance of RBA is compared with the equally weighted, traditional mean-variance and more recently proposed portfolio strategies including improved estimators for covariance misspecification. Overall, applied various performance metrics, in particular, return-per-unit of risk measures provide convincing evidence of enhanced performance in favour of RBA portfolios.