Portfolio Optimization at Hong Kong Stock Exchange

Abstract

Portfolio optimization is the process of selecting the best portfolio from all the portfolios to be considered. The purpose of this thesis is to compare the out-of-sample performance of the selected portfolio optimisation strategies in terms of return and risk, and thus to select the investment strategy or model that finds the best portfolio for a given situation. The thesis is structured into five chapters. In Chapter 1, we briefly describe the overall framework. In Chapter 2, we focus on describing the history, characteristics and performance of stock exchanges. In Chapter 3, we describe the strategy theory that we apply in the practical part. Portfolio backtesting and portfolio performance measures are also described. In Chapter 4, we divide the analysis into in-sample and out-of-sample periods. We apply the strategies in each of these two periods and backtest the strategies in the out-of-sample period. Finally, we compare the strategies in the out-of-sample period by means of performance indicators and select the best portfolio strategy. Chapter 5 provides a concluding description of the full thesis.