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Deshkovski, A.
Dzeshkovskaia, A.
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[Journal:] Cogent Economics & Finance [ISSN:] 2332-2039 [Volume:] 2 [Year:] 2014 [Issue:] 1 [Pages:] 2-10
In this study, we analyze the portfolio allocation based on time asymmetry of stock characteristics. In particular, we analyzed the empirical data of changes in financial stock prices during the day period and during the night period and have found that characteristics such as mean and variance are different for changes during the day and changes during the night. Also, the portfolio characteristics, such as covariance between stocks, differ on whether we take into account day changes or night changes in prices. That greatly affects the allocation of fund to the portfolio for an investor who trades frequently. The portfolio should be re-balanced every day in order to achieve optimality and much higher return. At the same level of risk the returns on this new portfolio may by several times larger than the returns on a portfolio without everyday re-balancing. We computed numerically the allocation of funds for the stocks from the finance industry and showed that the increase in returns is substantial.
stock returns
portfolio analysis
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