Diversified portfolios with different entropy measures

作者：Yu Jing Rung^*; Lee Wen Yi; Chiou Wan Jiun Paul

来源：Applied Mathematics and Computation, 2014, 241: 47-63.

DOI：10.1016/j.amc.2014.04.006

• Multiple criteria analysis
• Multiple objective programming
• Entropy
• Portfolio selection
• Short selling
• Transaction cost

One of the major issues for Markowitz mean-variance model is the errors in estimations cause %26quot;corner solutions%26quot; and low diversity in the portfolio. In this paper, we compare the mean-variance efficiency, realized portfolio values, and diversity of the models incorporating different entropy measures by applying multiple criteria method. Differing from previous studies, we evaluate twenty-three portfolio over-time rebalancing strategies with considering short-sales and various transaction costs in asset diversification. Using the data of the most liquid stocks in Taiwan%26apos;s market, our finding shows that the models with Yager%26apos;s entropy yield higher performance because they respond to the change in market by reallocating assets more effectively than those with Shannon%26apos;s entropy and with the minimax disparity model. Furthermore, including entropy in models enhances diversity of the portfolios and makes asset allocation more feasible than the models without incorporating entropy.

• 出版日期2014-8-15