Portfolio Construction Using Bootstrapping Neural Networks

• Main Authors: Zheng-Wei Lin, 林政緯
• Other Authors: Chin-Sheng Huang
• Format: Others
• Language: en_US
• Published: 2011
• Online Access: http://ndltd.ncl.edu.tw/handle/50166282657736133905

博士 === 雲林科技大學 === 管理研究所博士班 === 99 === ABSTRACT Despite having become firmly established as one of the major cornerstone principles of modern finance, traditional Markowitz mean-variance analysis has, nevertheless, failed to gain widespread acceptance as a practical tool for equity management. The Markowitz optimization enigma essentially centers on the severe estimation risk associated with the input parameters, as well as the resultant financially irrelevant or even false optimal portfolios and asset allocation proposals. We therefore propose a portfolio construction method in the present study which incorporates the adoption of bootstrapping neural network architecture. In specific terms, a residual bootstrapping sample, which is derived from multilayer feedforward neural networks, is incorporated into the estimation of the expected returns and the covariance matrix, which are then, in turn, integrated into the traditional Markowitz optimization procedure. The efficacy of our proposed approach is illustrated by comparing it with traditional Markowitz mean-variance analysis, as well as the James-Stein and minimum-variance estimators, with the empirical results indicating that this novel approach significantly outperforms the benchmark models, in terms of various risk-adjusted performance measures. The evidence provided by this study suggests that this new approach has significant promise with regard to the enhancement of the investment value of Markowitz mean-variance analysis.