Mean-Variance Portfolio Optimization of Energy Stocks Supported with Second Order Stochastic Dominance Efficiency


Güran C. B. , Ugurlu U., Taş O.

FINANCE A UVER-CZECH JOURNAL OF ECONOMICS AND FINANCE, vol.69, no.4, pp.366-383, 2019 (Journal Indexed in SSCI) identifier identifier

  • Publication Type: Article / Article
  • Volume: 69 Issue: 4
  • Publication Date: 2019
  • Title of Journal : FINANCE A UVER-CZECH JOURNAL OF ECONOMICS AND FINANCE
  • Page Numbers: pp.366-383

Abstract

Second order stochastic dominance pairwise efficiency could be considered as a milestone among the improvements, which eliminates the shortcomings of mean-variance theory. This paper applies mean-variance optimization on the global fossil fuels stocks, as a leading representative of energy sector, with the help of the pre-elimination of second order stochastic dominance pairwise inefficient stocks. The performance of the application is additionally measured with an out-of-sample back-testing analysis, which indicates a contribution to the existing literature; second order stochastic dominance pre-elimination method increases the success of some of the selected mean-variance optimized portfolios on the efficient frontier which stand out with a better back-testing performance.