[PDF] Portfolio Volatility Estimation Relative to Stock Market Cross-Sectional Intrinsic Entropy-论文阅读讨论-ReadPaper

摘要

Selecting stock portfolios and assessing their relative volatility riskcompared to the market as a whole, market indices, or other portfolios is ofgreat importance to professional fund managers and individual investors alike.Our research uses the cross-sectional intrinsic entropy (CSIE) model toestimate the cross-sectional volatility of the stock groups that can beconsidered together as portfolio constituents. In our study, we benchmarkportfolio volatility risks against the volatility of the entire market providedby the CSIE and the volatility of market indices computed using longitudinaldata. This article introduces CSIE-based betas to characterise the relativevolatility risk of the portfolio against market indices and the market as awhole. We empirically prove that, through CSIE-based betas, multiple sets ofsymbols that outperform the market indices in terms of rate of return whilemaintaining the same level of risk or even lower than the one exhibited by themarket index can be discovered, for any given time interval. These sets ofsymbols can be used as constituent stock portfolios and, in connection with theperspective provided by the CSIE volatility estimates, to hierarchically assesstheir relative volatility risk within the broader context of the overallvolatility of the stock market.

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