Strategic Decision Making in Portfolio Management with Goal Programming Model

摘要

Enhanced index tracking is a popular type of portfolio management which aims to construct the optimal portfolio in order to generate higher portfolio mean return than the benchmark index mean return. Enhanced index tracking is a dual objective optimization problem which can be represented by a goal programming model to determine the trade-off between maximizing the portfolio mean return and minimizing the tracking error. The objective of this paper is to apply the goal programming model in constructing the optimal portfolio to track the Technology Index in Malaysia. In this study, the data consists of weekly return of the companies from technology sector in Malaysia stock market. The results of this study indicate that the optimal portfolio is able to outperform Technology Index by generating weekly excess mean return 0.3798% at minimum tracking error 2.0980%. The significance of this study is to identify and apply the goal programming model as a strategic decision-making tool for the fund managers to track the benchmark Technology Index effectively in Malaysia stock market.