ENHANCED PORTFOLIO OPTIMIZATION

Abstract

Portfolio optimization ought to provide investors with an asset allocation strategy that outperforms the market. As a foundation of all portfolio optimization strategies, standard mean-variance optimization (MVO) strategy usually underperforms the market portfolio in practice. Numerous researches also present the fact that most of the active investors actually underperform the market, hence the best way of investing might be the most passive one. This paper duplicates and extends the work of an existing study to verify the effect of correlation shrinkage and implement industrial momentum in the Enhanced Portfolio Optimization method