Portfolio selection based on Bayesian theory

DOI10.1155/2019/4246903MaRDI QIDQ2298422zbMATH OpenOpenAlexWikidataFDO

Authors Daping Zhao, Yong Fang, Chaoliang Zhang, Zongrun Wang

Publication date 20 February 2020

Published in Mathematical Problems in Engineering (Search for Journal in Brave)

Copyright license Creative Commons Attribution 4.0 International

Full work available at URL https://doi.org/10.1155/2019/4246903

Mathematics Subject Classification ID

Applications of statistics to actuarial sciences and financial mathematics (62P05) Portfolio theory (91G10) Statistical methods; risk measures (91G70)

Review text

Summary: The traditional portfolio selection model seriously overestimates its theoretic optimal return. Aiming at this problem, two portfolio selection models are proposed to modify the parameters and enhance portfolio performance based on Bayesian theory. Firstly, a Bayesian-GARCH(1,1) model is built. Secondly, Markov Chain is applied to curve the parameters' state transfer, and a Bayesian Markov regime-Switching-GARCH(1,1) model is constructed. Both the two models can handle the overestimation problem and can obtain self-financing portfolios. In the numerical experiments, both the models are examined with data from China stock market, and their performances are compared and analyzed. The results show that BMS-GARCH(1,1) model is superior to the Bayesian-GARCH(1,1) model.

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Cited in

(8)

• Sparse portfolio selection via Bayesian multiple testing
• Bayesian filtering for multi-period mean-variance portfolio selection
• Bayesian adaptive portfolio optimization
• A Bayesian information criterion for portfolio selection
• Portfolio choice and the Bayesian Kelly criterion
• Time-varying portfolio selection based on DCC-MIDAS and parametric scheme
• Portfolio selection model based on POET method
• A three-moment portfolio selection model: multipliers and duality

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