Realized performance of robust portfolios: Worst-case Omega vs. CVaR-related models

摘要

The robust portfolio models are a suitable methodology in an economy of uncertain returns. We advance the worst-case Omega (WOmega) model and two CVaR-related robust models by considering transaction costs and short-selling. Our proposed models are linearized and, therefore, are suitable to generate the global optimums for a wide scale of assets. We analyze their ex post performance by rebalancing two groups of assets: (1) International funds and alternative investments, and (2) the S&P 500 component stocks. The empirical results using two datasets of daily returns in more than 10 years show the superior realized performance of the WOmega model over the two CVaR-related robust portfolios under different confidence levels (alpha's) and under different levels of required return (E). The fact that the WOmega model yields lower loss values than the CVaR-related counterparts shows it better controls the downside risk. The superiority of the WOmega portfolio model is found under various investor preference selecting between return and risk (delta's) while higher return threshold values (tau's) yield higher market values and higher downside risk. (C) 2018 Elsevier Ltd. All rights reserved.