Portfolio Optimization Through Elastic Maps: Some Evidence from the Italian Stock Exchange

  • Marina Resta
Conference paper

DOI: 10.1007/978-3-540-74827-4_80

Part of the Lecture Notes in Computer Science book series (LNCS, volume 4693)
Cite this paper as:
Resta M. (2007) Portfolio Optimization Through Elastic Maps: Some Evidence from the Italian Stock Exchange. In: Apolloni B., Howlett R.J., Jain L. (eds) Knowledge-Based Intelligent Information and Engineering Systems. KES 2007. Lecture Notes in Computer Science, vol 4693. Springer, Berlin, Heidelberg

Abstract

In this paper we discuss the use of elastic maps as support tool in the decision process underlying the selection, optimization, and management of financial portfolios. In particular, we suggest an allocation scheme which is interely driven by neural networks, in contrast to the traditional model where investors distribute their money among assets chosen according to the mean and variance of their returns. Our optimization procedure is based on the selection of assets from clusters originated by the nets, according to their proximity to the nodes of the map; this, in turn, is the criterion thanks to which we assign the proper weight to each asset into the portfolio. In order to check the profitability of the approach, we have empirically tested the method with stocks from the Italian Stock Exchange; market reference index has been then used to build proper performance benchmarks. Our main results may be summarised as follows: (i) our approach has revealed to be generally more informative than classical mean−variance method, since it allows to take into account additional variables in the selection procedure; (ii) our procedure can work both in a static framework (i.e. for one time choice), and into a dynamic context (i.e. to the purpose of re−calibration of original decisions). The overall performances appear to be superior to the benchmark in both the static and dynamic case.

Keywords

Elastic Maps Portfolio Optimization Italian Stock Exchange 

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Copyright information

© Springer-Verlag Berlin Heidelberg 2007

Authors and Affiliations

  • Marina Resta
    • 1
  1. 1.Department of Applied Economics and Quantitative Methods, University of Genova, Via Vivaldi 2, 16126, GenovaItaly

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