Algorithm for construction of portfolio of stocks using Treynor’s ratio

Sinha, Pankaj and Goyal, Lavleen (2012): Algorithm for construction of portfolio of stocks using Treynor’s ratio.

Abstract

The aim of the paper is to implement the algorithm for selecting stocks from a pool of stocks listed in a single market index like S&P CNX 500(say) and finding the corresponding weights of the stocks in the optimized portfolio using Treynor’s ratio, on the basis of historical data of Indian stock market when the short selling is not allowed. The effectiveness of this algorithm has been demonstrated with an example.

• Item Type: MPRA Paper
• Language: English
• Keywords: Portfolio Construction, Treynor's ratio, algorithm for portfolio selection, Capital Asset Pricing Model
• Subjects: G - Financial Economics > G1 - General Financial Markets > G11 - Portfolio Choice ; Investment Decisions; G - Financial Economics > G1 - General Financial Markets > G12 - Asset Pricing ; Trading Volume ; Bond Interest Rates; C - Mathematical and Quantitative Methods > C0 - General > C00 - General; C - Mathematical and Quantitative Methods > C6 - Mathematical Methods ; Programming Models ; Mathematical and Simulation Modeling > C63 - Computational Techniques ; Simulation Modeling; G - Financial Economics > G1 - General Financial Markets > G10 - General

References

H.M. Markowitz, “Portfolio Selection”, Journal of Finance,7(1952),77-91

E.J. Elton, M.J. Gruber, S.J. Brown, W.N. Goetzmann, Modern Portfolio Theory and Investment Analysis, (2009)