TY - JOUR
T1 - Developing an enhanced portfolio trading system using K-means and genetic algorithms
AU - Ahn, Wonbin
AU - Cheong, Donghyun
AU - Kim, Youngmin
AU - Oh, Kyong Joo
N1 - Publisher Copyright:
© 2018 International Journal of Industrial Engineering.
Copyright:
Copyright 2019 Elsevier B.V., All rights reserved.
PY - 2018
Y1 - 2018
N2 - The objective of this study is to enhance the ability of an index fund strategy using k-means clustering and genetic algorithms. This study proposes a novel enhanced portfolio mechanism consisting of two phases. In the first phase, a subset of all the index shares is selected using k-means clustering based on investor information. In the second phase, a genetic algorithm is employed to search for the optimal stock weights in the selected clusters. In order to identify the usefulness of the proposed model, this study is compared against the conventional approach of using an index fund strategy with tracking error minimization. For measuring trading performance, the tracking error, which is a measure of how closely a portfolio follows the index as a benchmark, is evaluated. Furthermore, the information ratio is used to compare the performance of the proposed model in terms of the risk-adjusted return. An empirical study of the proposed model is simulated in the Korea stock exchange market.
AB - The objective of this study is to enhance the ability of an index fund strategy using k-means clustering and genetic algorithms. This study proposes a novel enhanced portfolio mechanism consisting of two phases. In the first phase, a subset of all the index shares is selected using k-means clustering based on investor information. In the second phase, a genetic algorithm is employed to search for the optimal stock weights in the selected clusters. In order to identify the usefulness of the proposed model, this study is compared against the conventional approach of using an index fund strategy with tracking error minimization. For measuring trading performance, the tracking error, which is a measure of how closely a portfolio follows the index as a benchmark, is evaluated. Furthermore, the information ratio is used to compare the performance of the proposed model in terms of the risk-adjusted return. An empirical study of the proposed model is simulated in the Korea stock exchange market.
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M3 - Article
AN - SCOPUS:85060721729
VL - 25
SP - 559
EP - 568
JO - International Journal of Industrial Engineering : Theory Applications and Practice
JF - International Journal of Industrial Engineering : Theory Applications and Practice
SN - 1072-4761
ER -