New robust portfolio selection models based on the principal components analysis: An application on the Turkish holding stocks

Göktaş F., Duran A.

Journal of Multiple-Valued Logic and Soft Computing, cilt.34, ss.43-58, 2020 (SCI-Expanded) identifier identifier

  • Yayın Türü: Makale / Tam Makale
  • Cilt numarası: 34
  • Basım Tarihi: 2020
  • Dergi Adı: Journal of Multiple-Valued Logic and Soft Computing
  • Derginin Tarandığı İndeksler: Science Citation Index Expanded (SCI-EXPANDED), Scopus, Applied Science & Technology Source, Compendex, Computer & Applied Sciences, zbMATH
  • Sayfa Sayıları: ss.43-58
  • Anahtar Kelimeler: Portfolio selection, imprecise probability, robust optimization, worst-case analysis, possibility theory, fuzzy logic, triangular fuzzy numbers, principal components analysis
  • İstanbul Teknik Üniversitesi Adresli: Evet

Özet

Robust optimization is a significant tool to deal with the uncertainty of parameters. However, the robust versions of the mean – variance (MV) model have serious shortcomings. Thus, we propose new robust versions of the MV model and its possibilistic counterpart, based on the Principal Component Analysis. We also derive their analytical solutions when the risk-free asset and short positioning are allowed. In addition, we suggest an eigenvalue approach to manage their conservativeness. After laying down the theoretical points, we illustrate them by using a real data set of six holding stocks trading on the Borsa Istanbul (BIST). We also compare the profitability and performance results of the existing models and the proposed robust models.