Portfolio formation based on risk-adjusted performance and distribution-based returns using data envelopment analysis
Purpose: This research aims to construct a portfolio based on risk-adjusted performance and distribution-based returns and determine the efficiency using the Data Envelopment Analysis (DEA) approach. In this study, the role of return distribution in the efficiency of risky assets is also examined to...
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| Format: | Article |
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Ayandegan Institute of Higher Education, Tonekabon,
2024-08-01
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| Series: | تصمیم گیری و تحقیق در عملیات |
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| Online Access: | https://www.journal-dmor.ir/article_189301_43a18f398ee5e972042b743f8cba5abb.pdf |
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| author | Hosseinali Heydarzadeh Fereydon Rahnamay Roodposhti Alireza Rashidi Komijan Seyyed Esmaeil Najafi |
| author_facet | Hosseinali Heydarzadeh Fereydon Rahnamay Roodposhti Alireza Rashidi Komijan Seyyed Esmaeil Najafi |
| author_sort | Hosseinali Heydarzadeh |
| collection | DOAJ |
| description | Purpose: This research aims to construct a portfolio based on risk-adjusted performance and distribution-based returns and determine the efficiency using the Data Envelopment Analysis (DEA) approach. In this study, the role of return distribution in the efficiency of risky assets is also examined to form a diversified portfolio consisting of assets with varying degrees of performance.Methodology: In this study, the diversified portfolio performance of 28 firms during 1398-1402, based on the risk-adjusted value and conditional risk-adjusted value obtained from the probability distributions of returns, was compared with the minimum-variance Markowitz portfolio performance in terms of the Sharpe ratio. After estimating the maximum likelihood parameters of the model, the risk values for each stock were calculated based on the empirical return distribution, the Cauchy distribution, and the normal distribution. These risk values were then used in the data envelopment analysis to calculate the efficiency scores of each company.Findings: The diversified portfolio with stock performance degrees outperforms the minimum-variance Markowitz portfolio in terms of risk-adjusted and conditional risk-adjusted values. The probability distribution of returns leads to different results in calculating stock risk-adjusted value/conditional value, with the empirical return distribution and normal distribution providing a more desirable performance (in terms of the Sharpe ratio) compared to the Cauchy distribution and sample ratios.Originality/Value: In the literature, an efficient portfolio is usually formed by calculating asset weights in the stock basket so that the Sharpe ratio reaches its maximum value. In the current study, this hypothesis is challenged in favor of the proposed method, which estimates portfolio weights based on the efficiency of risky assets. |
| format | Article |
| id | doaj-art-75d029c2c87a4d18b5497c3201b3b4f0 |
| institution | Kabale University |
| issn | 2538-5097 2676-6159 |
| language | fas |
| publishDate | 2024-08-01 |
| publisher | Ayandegan Institute of Higher Education, Tonekabon, |
| record_format | Article |
| series | تصمیم گیری و تحقیق در عملیات |
| spelling | doaj-art-75d029c2c87a4d18b5497c3201b3b4f02025-01-30T15:03:45ZfasAyandegan Institute of Higher Education, Tonekabon,تصمیم گیری و تحقیق در عملیات2538-50972676-61592024-08-019228930410.22105/dmor.2024.419742.1799189301Portfolio formation based on risk-adjusted performance and distribution-based returns using data envelopment analysisHosseinali Heydarzadeh0Fereydon Rahnamay Roodposhti1Alireza Rashidi Komijan2Seyyed Esmaeil Najafi3Department of Industrial Management, Faculty of Management and Economics, Science and Research Branch, Islamic Azad University, Tehran, Iran.Department of Accounting and Finance, Science and Research Branch, Islamic Azad University, Tehran, Iran.Department of Industrial Engineering, Firoozkooh Branch, Islamic Azad University, Firoozkooh, Iran.Department of Industrial Engineering, Science and Research Branch, Islamic Azad University , Tehran, Iran.Purpose: This research aims to construct a portfolio based on risk-adjusted performance and distribution-based returns and determine the efficiency using the Data Envelopment Analysis (DEA) approach. In this study, the role of return distribution in the efficiency of risky assets is also examined to form a diversified portfolio consisting of assets with varying degrees of performance.Methodology: In this study, the diversified portfolio performance of 28 firms during 1398-1402, based on the risk-adjusted value and conditional risk-adjusted value obtained from the probability distributions of returns, was compared with the minimum-variance Markowitz portfolio performance in terms of the Sharpe ratio. After estimating the maximum likelihood parameters of the model, the risk values for each stock were calculated based on the empirical return distribution, the Cauchy distribution, and the normal distribution. These risk values were then used in the data envelopment analysis to calculate the efficiency scores of each company.Findings: The diversified portfolio with stock performance degrees outperforms the minimum-variance Markowitz portfolio in terms of risk-adjusted and conditional risk-adjusted values. The probability distribution of returns leads to different results in calculating stock risk-adjusted value/conditional value, with the empirical return distribution and normal distribution providing a more desirable performance (in terms of the Sharpe ratio) compared to the Cauchy distribution and sample ratios.Originality/Value: In the literature, an efficient portfolio is usually formed by calculating asset weights in the stock basket so that the Sharpe ratio reaches its maximum value. In the current study, this hypothesis is challenged in favor of the proposed method, which estimates portfolio weights based on the efficiency of risky assets.https://www.journal-dmor.ir/article_189301_43a18f398ee5e972042b743f8cba5abb.pdfvalue at riskefficient portfolioprobability distributiondata envelopment analysis |
| spellingShingle | Hosseinali Heydarzadeh Fereydon Rahnamay Roodposhti Alireza Rashidi Komijan Seyyed Esmaeil Najafi Portfolio formation based on risk-adjusted performance and distribution-based returns using data envelopment analysis تصمیم گیری و تحقیق در عملیات value at risk efficient portfolio probability distribution data envelopment analysis |
| title | Portfolio formation based on risk-adjusted performance and distribution-based returns using data envelopment analysis |
| title_full | Portfolio formation based on risk-adjusted performance and distribution-based returns using data envelopment analysis |
| title_fullStr | Portfolio formation based on risk-adjusted performance and distribution-based returns using data envelopment analysis |
| title_full_unstemmed | Portfolio formation based on risk-adjusted performance and distribution-based returns using data envelopment analysis |
| title_short | Portfolio formation based on risk-adjusted performance and distribution-based returns using data envelopment analysis |
| title_sort | portfolio formation based on risk adjusted performance and distribution based returns using data envelopment analysis |
| topic | value at risk efficient portfolio probability distribution data envelopment analysis |
| url | https://www.journal-dmor.ir/article_189301_43a18f398ee5e972042b743f8cba5abb.pdf |
| work_keys_str_mv | AT hosseinaliheydarzadeh portfolioformationbasedonriskadjustedperformanceanddistributionbasedreturnsusingdataenvelopmentanalysis AT fereydonrahnamayroodposhti portfolioformationbasedonriskadjustedperformanceanddistributionbasedreturnsusingdataenvelopmentanalysis AT alirezarashidikomijan portfolioformationbasedonriskadjustedperformanceanddistributionbasedreturnsusingdataenvelopmentanalysis AT seyyedesmaeilnajafi portfolioformationbasedonriskadjustedperformanceanddistributionbasedreturnsusingdataenvelopmentanalysis |