Abstract
In this research, four proposed finite order universal portfolios were used to study Malaysia’s stock market comprehensively and the constant rebalanced portfolio (CRP) was used as a benchmark for comparison. The empirical performance of the four universal portfolio strategies was analysed experimentally concerning 95 stocks from different categories in Kuala Lumpur Stock Exchange (KLSE) from 1 January 2000 to 31 December 2015. Combinations of three stocks data from the selected 95 stocks are used for study for short-term (1-year duration), middle-term (4-years and 8-years durations) and long-term (12-years and 16-years durations). The empirical results showed that the performances of the proposed universal strategies are outperform CRP in 1 year and 4 years durations, but did poorly in 8-years, 12-years and 16-years durations. Therefore, these four UP strategies are empirically considered to be good investment strategies in the short-term.
Highlights
The goal of this research is to study Malaysia’s stock market using four finite order universal portfolios (UP) comprehensively and to use the constant rebalanced portfolio (CRP) as a benchmark
The performance of the four UP strategies is analysed for the empirically best performing parameters found in Pang et al [7, 8]
The descriptive statistics of the ratios of the return of our four strategies against the return of the CRP wealth are summarised in Table 1 to Table 5
Summary
The goal of this research is to study Malaysia’s stock market using four finite order universal portfolios (UP) comprehensively and to use the constant rebalanced portfolio (CRP) as a benchmark. Finite order universal portfolio depends only on the positive moments of the generating probability distribution. The formulation of the m -weighted universal portfolio, Cover-Ordentlich universal portfolio [1] and order n universal portfolio [2] were simplified using probability theory and they are further extended to stochastic process based universal portfolio. The order n universal portfolio has better speed and memory performance as well as being easier to implement in highlevel programming language compare to the original Cover-Ordentlich universal portfolio. Raymond et al [4] study the portfolio diversification strategy namely active and passive portfolio investment strategy in Malaysian stock market. The overall outcomes showed that the active portfolio strategy outperforms the passive portfolio strategy
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