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, cilt.69, sa.4, ss.366-383, 2019 (SSCI) identifier identifier

  • Yayın Türü: Makale / Tam Makale
  • Cilt numarası: 69 Sayı: 4
  • Basım Tarihi: 2019
  • Dergi Adı: FINANCE A UVER-CZECH JOURNAL OF ECONOMICS AND FINANCE
  • Derginin Tarandığı İndeksler: Social Sciences Citation Index (SSCI), Scopus
  • Sayfa Sayıları: ss.366-383
  • İstanbul Teknik Üniversitesi Adresli: Evet

Özet

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.