A risk-gain dominance maximization approach to enhanced index tracking

01 Pubblicazione su rivista
Cesarone Francesco, Lampariello Lorenzo, Sagratella Simone
ISSN: 1544-6123

Following the research strands of enhanced index tracking and of portfolio performance measures optimization, we propose to choose, among the feasible asset portfolios of a given market, the one that maximizes the geometric mean of the differences between its risk and gain and those of a suitable reference benchmark, such as the market index. This approach, which has a peculiar geometric interpretation and enjoys remarkable features, provides the efficient portfolio that dominates the largest amount of portfolios dominating the reference benchmark index. Preliminary empirical results highlight good out-of-sample performances of our approach compared with those of the market index.

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