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Mean-Variance-Instability Portfolio Analysis: A Case of Taiwan's Stock Market
Abstract
This paper applies Talpaz, Harpaz, and Penson's (THP) (Talpaz, H., A. Harpaz, J. B. Penson, Jr. 1983. Risk and spectral instability in portfolio analysis. Eur. J. Oper. Res. 14 262--269.) mean-variance-instability portfolio selection model to eight selected Taiwan stocks during 1980--89 to demonstrate how instability preference affects the traditional mean-variance frontier. In contrast to THP's finding, the empirical results show that Taiwan's high-frequency stocks have high, not low, variance. This indicates that Taiwan investors, unlike U.S. investors, prefer to speculate in high-variance stocks. The empirical results also show that short selling may increase the risk of the portfolio when the investor is instability preferred.
... However, regarding the forecasting ability of portfolio manager and the higher order moments incorporation to the portfolio construction process by Jensen (1968) and Samuelson (1970) added the boost to the mean variance approach of optimization. The broader insight of empirical mean-variance optimization is better reflected from the studies ofKazemi (1988), Lee and Chang (1995 Henke (2016). From all the above studies one major research gap arises and thereby the research question is: To what extent does the sustainability based constrained Markowitz optimization approach helps to enhance the investment results in relation to Indian Capital Market and this paper makes an attempt to answer this question. ...
Workplace ostracism is one of the most common forms of passive workplace mistreatment, in which employees are ignored and excluded from the workplace. The primary goal of this study is to investigate the relationship between workplace ostracism and workplace behavior, as well as how neuroticism moderates this relationship. This is a descriptive research project and a cross-sectional research design with exposure and outcome constraints was used. Data were acquired from 180 employees working in private firms in India and analyzed using PLS-SEM. A conceptual model is also constructed based on the COR (Conservation of Resources) principle that describes the impact of workplace ostracism on employee behavior. Workplace ostracism has a negative impact on employee job performance but does not affect deviant behavior. It also shows that whereas neuroticism has a stronger moderating effect on the link between workplace ostracism and job performance, it does not influence deviant behavior that goes against our expectations. While previous studies have mostly focused on the moderating effect of psychological or motivational constructs on the association between workplace exclusion and behavior, the author has added to the existing body of knowledge by examining one of the Big-Five Personality Dimensions, namely Neuroticism, and its moderating effect.
... They argued that investors may either prefer or be averse to investing in high-frequency stocks. In contrast to THP's findings, Lee and Chang (1995) showed evidence that Taiwan's high frequency stocks have a high variance. Chuan (1998) discussed how to construct a portfolio that tracks the return of the market with a few numbers of stocks. ...
This study investigates the ability of security selection by comparing the performance of the portfolios of fund of funds (FOF) constructed by the Markowitz Mean–Variance (MV) model or Genetic Algorithms (GA) to that of fund managers (FMs). All target mutual funds held by FOF in the US market from 1 January 2000 to 31 December 2003 are chosen. The results reveal several things. First of all, only GA and the MV both beat the market index and the performance of GA is much better than that of FMs and the MV. Secondly, in terms of the ability to select funds, both the MV and GA outperform the operation of FMs. Finally, GA dominate over the MV in regards to measuring performance and performance persistence.
An investor while selecting portfolio with the objective of minimisation of risk and high return faced various constraints like dividend, good return, earning per share, company and industrial diversification and also he wants sufficient liquidity etc. An attempt is made to incorporate various relevant factors for developing and testing of efficient portfolio model for construction of portfolio. Secondary data is used for the companies listed in Nifty 50 index. Regression analysis, granger causality test, portfolio optimisation is undertaken for the formation of portfolio and evaluated by Sharpe and Treynor ratio. It is found that as compared to market trend portfolio, Proposed portfolio model performed better. Portfolio, earning per share, dividend, diversification, liquidity.
The Lo and MacKinlay variance-ratio test is used to examine random walks in Taiwan's 1971-1996 stock prices. The empirical results show that with weekly value-weighted market index, the null hypothesis of random walk is rejected, and the autocorrelation decreases after the 1990 speculation fad and is inversely related to the range of price limits. The study also finds that the random walk hypothesis cannot be rejected with monthly, quarterly and yearly value-weighted market indexes. Copyright 2000 by Taylor and Francis Group
Some investors pursuing a high return at the relatively high risk of losing a part of their money do not always select a preferred portfolio from among the so-called “mean-variance efficient frontier” provided by Markowitz (1959, Portfolio Selection, Wiley, New York). Chue and Nagasawa (1996, An investor-modeling and interactive method in multiobjective portfolio selection, Proceedings of the Pacific Conference on Manufacturing '96) constructed their own investor model based on an “α-risk permission maximum return portfolio” and proposed an interactive portfolio selection system for selecting a preferred portfolio from the set of candidate portfolios. This paper extends the system to the case when the mean and the variance of return of securities have several scenarios with known occurrence probabilities.
The model introduced by H. Talpaz, A. Harpaz and J.B. Penson (1984. European Journal of Operational Research 14, 262–269) extends the mean–variance model introducing the concept of instability. In this way it is possible to see an investor's attitude towards predicted instability. In this paper we show how optimisation procedures based on penalty (or preferred) weighted instability matrices can be interpreted in terms of real time utility functions which depend on an `actual' and a `remembered' time series due to fading memory. This approach justifies some bounded normalised functions used to represent the investors preference between the irregular frequency fluctuations.
Applying the Lo and MacKinlay variance ratio test on the weekly returns from the Taiwan stock market from 1990 to mid 2006, I obtained results strongly indicative of the fact that not only does the Taiwan composite stock index move in a random walk fashion, returns for the individual stocks do so as we. Previous authors employing the same methodology obtained opposite results, namely, that the movements of the Taiwan stock composite index do not follow a random walk.
This paper is a brief survey of systematic violations of security market efficiencies in the US, Japan and other world wide equity markets. These security market regulatories or anomalies seem to occur because of cash flow, institutional constraints and policies, investor behavior and sentiment, the slowness of markets to react to new information, the timing of favorable or unfavorable information flows and market maker supply-demand balances and optimal bid-ask spreads. While such anomalies are controversial and difficult to measure precisely as well as being variable over time, the persistence of many of these market regularities is considerable interest to researchers and financial traders.
This study extends the traditional E-V portfolio selection model pioneered by Markowitz and extended by others to accommodate the investor's attitude towards predicted instability. It is argued that investors—given the choice between the two equal amplitude net earnings series—may either prefer, or be averse to, investing in that stock with the highest frequency, all other things constant. An instability aversion (preference) function was developed in this study that could accomodate alternative attitudes toward instability. Finally, a situation where an investor (who is assumed to be averse to predicted instability) was given the choice of selecting among alternative combinations of six stocks, was analyzed under alternative weights assigned to the importance of instability relative to risk. The results showed that the optimal portfolio combination may begin to differ sharply from the traditional E-V solution as the investor's aversion toward instability becomes more important relative to his aversion to risk.
: the conventional approach to the design of stochastic systems operates, either directly or indirectly, by minimising the variance of the model. this procedure can be regarded as a natural extension of the stability analysis of a deterministic system, according to which the degree of stability is inversely related to the absolute value of its largest characteristic root. very often, however, the policymaker is not indifferent to the frequency composition of economic fluctuations. he may, for example, have a marked dislike for short-term fluctuations. we formalize this notion by setting up a spectral utility function as a criterion for steady-state optimisation, and show that the results from such an optimisation may conflict with those yielded by the conventional approach. large characteristic roots may not necessarily be bad! the scheme of the paper is as follows. because the ideas involved may be unfamiliar we shall spend some time on a rather intuitive motivation for what follows. this is done in section i. in section ii the notion of a spectral utility function is introduced and its evaluation discussed. we then return to the example of section i to give it a more precise treatment. section iii contains extensions, principally to the multivariate case.;