TY - JOUR
T1 - A Network View of Portfolio Optimization Using Fundamental Information
AU - Yan, Xiangzhen
AU - Yang, Hanchao
AU - Yu, Zhongyuan
AU - Zhang, Shuguang
N1 - Publisher Copyright:
Copyright © 2021 Yan, Yang, Yu and Zhang.
PY - 2021/8/12
Y1 - 2021/8/12
N2 - This article proposes the use of a novel approach to portfolio optimization, referred to as “Fundamental Networks” (FN). FN is an effective and robust network-based fundamental-incorporated method, and can be served as an alternative to classical mean-variance framework models. As a proxy for a portfolio, a fundamental network is defined as a set of “interconnected” stocks, among which linkages are a measure of similarity of fundamental information and are referred to asset allocation directly. Two empirical models are provided in this paper as applications of Fundamental Networks. We find that Fundamental Networks efficient portfolios are in general more mean-variance efficient in out-of-sample performance than Markwotiz’s efficient portfolios. Specifically, portfolios set for profitability goals create excess return in a general/upward trending market; portfolios targeted for operating fitness perform better in a downward trending market, and can be considered as a defensive strategy in the event of a crisis.
AB - This article proposes the use of a novel approach to portfolio optimization, referred to as “Fundamental Networks” (FN). FN is an effective and robust network-based fundamental-incorporated method, and can be served as an alternative to classical mean-variance framework models. As a proxy for a portfolio, a fundamental network is defined as a set of “interconnected” stocks, among which linkages are a measure of similarity of fundamental information and are referred to asset allocation directly. Two empirical models are provided in this paper as applications of Fundamental Networks. We find that Fundamental Networks efficient portfolios are in general more mean-variance efficient in out-of-sample performance than Markwotiz’s efficient portfolios. Specifically, portfolios set for profitability goals create excess return in a general/upward trending market; portfolios targeted for operating fitness perform better in a downward trending market, and can be considered as a defensive strategy in the event of a crisis.
KW - asset allocation
KW - financial networks
KW - fundamental analysis
KW - minimum spanning tree
KW - portfolio optimization
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U2 - 10.3389/fphy.2021.721007
DO - 10.3389/fphy.2021.721007
M3 - Article
AN - SCOPUS:85118709373
VL - 9
JO - Frontiers in Physics
JF - Frontiers in Physics
M1 - 721007
ER -