A new enhanced index tracking model in portfolio optimization with sum weighted approach

Lam Weng Siew, Saiful Hafizah Jaaman @ Sharman, Lam Weng Hoe

Research output: Chapter in Book/Report/Conference proceedingConference contribution

Abstract

Index tracking is a portfolio management which aims to construct the optimal portfolio to achieve similar return with the benchmark index return at minimum tracking error without purchasing all the stocks that make up the index. Enhanced index tracking is an improved portfolio management which aims to generate higher portfolio return than the benchmark index return besides minimizing the tracking error. The objective of this paper is to propose a new enhanced index tracking model with sum weighted approach to improve the existing index tracking model for tracking the benchmark Technology Index in Malaysia. The optimal portfolio composition and performance of both models are determined and compared in terms of portfolio mean return, tracking error and information ratio. The results of this study show that the optimal portfolio of the proposed model is able to generate higher mean return than the benchmark index at minimum tracking error. Besides that, the proposed model is able to outperform the existing model in tracking the benchmark index. The significance of this study is to propose a new enhanced index tracking model with sum weighted apporach which contributes 67% improvement on the portfolio mean return as compared to the existing model.

Original languageEnglish
Title of host publication4th International Conference on Mathematical Sciences - Mathematical Sciences
Subtitle of host publicationChampioning the Way in a Problem Based and Data Driven Society, ICMS 2016
PublisherAmerican Institute of Physics Inc.
Volume1830
ISBN (Electronic)9780735414983
DOIs
Publication statusPublished - 27 Apr 2017
Event4th International Conference on Mathematical Sciences - Mathematical Sciences: Championing the Way in a Problem Based and Data Driven Society, ICMS 2016 - Putrajaya, Malaysia
Duration: 15 Nov 201617 Nov 2016

Other

Other4th International Conference on Mathematical Sciences - Mathematical Sciences: Championing the Way in a Problem Based and Data Driven Society, ICMS 2016
CountryMalaysia
CityPutrajaya
Period15/11/1617/11/16

Fingerprint

optimization
Malaysia

ASJC Scopus subject areas

  • Physics and Astronomy(all)

Cite this

Siew, L. W., Jaaman @ Sharman, S. H., & Hoe, L. W. (2017). A new enhanced index tracking model in portfolio optimization with sum weighted approach. In 4th International Conference on Mathematical Sciences - Mathematical Sciences: Championing the Way in a Problem Based and Data Driven Society, ICMS 2016 (Vol. 1830). [040008] American Institute of Physics Inc.. https://doi.org/10.1063/1.4980936

A new enhanced index tracking model in portfolio optimization with sum weighted approach. / Siew, Lam Weng; Jaaman @ Sharman, Saiful Hafizah; Hoe, Lam Weng.

4th International Conference on Mathematical Sciences - Mathematical Sciences: Championing the Way in a Problem Based and Data Driven Society, ICMS 2016. Vol. 1830 American Institute of Physics Inc., 2017. 040008.

Research output: Chapter in Book/Report/Conference proceedingConference contribution

Siew, LW, Jaaman @ Sharman, SH & Hoe, LW 2017, A new enhanced index tracking model in portfolio optimization with sum weighted approach. in 4th International Conference on Mathematical Sciences - Mathematical Sciences: Championing the Way in a Problem Based and Data Driven Society, ICMS 2016. vol. 1830, 040008, American Institute of Physics Inc., 4th International Conference on Mathematical Sciences - Mathematical Sciences: Championing the Way in a Problem Based and Data Driven Society, ICMS 2016, Putrajaya, Malaysia, 15/11/16. https://doi.org/10.1063/1.4980936
Siew LW, Jaaman @ Sharman SH, Hoe LW. A new enhanced index tracking model in portfolio optimization with sum weighted approach. In 4th International Conference on Mathematical Sciences - Mathematical Sciences: Championing the Way in a Problem Based and Data Driven Society, ICMS 2016. Vol. 1830. American Institute of Physics Inc. 2017. 040008 https://doi.org/10.1063/1.4980936
Siew, Lam Weng ; Jaaman @ Sharman, Saiful Hafizah ; Hoe, Lam Weng. / A new enhanced index tracking model in portfolio optimization with sum weighted approach. 4th International Conference on Mathematical Sciences - Mathematical Sciences: Championing the Way in a Problem Based and Data Driven Society, ICMS 2016. Vol. 1830 American Institute of Physics Inc., 2017.
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