We introduce a novel criterion for performance measure combination designed to be used as an equity screening algorithm. The proposed approach follows the general idea of linearly combining selected performance measures with positive weights and combination weights are determined by means of an optimisation step. The underlying criterion function takes into account the risk-return trade-off potentially associated with the equity screens, evaluated on a historical and rolling basis. By construction, performance combination weights can vary over time, allowing for changes in preferences across performance measures. An empirical example shows the benefits of our approach compared to naive screening rules based on the Sharpe ratio.

We introduce a novel criterion for performance measure combination designed to be used as an equity screening algorithm. The proposed approach follows the general idea of linearly combining selected performance measures with positive weights and combination weights are determined by means of an optimisation step. The underlying criterion function takes into account the risk-return trade-off potentially associated with the equity screens, evaluated on a historical and rolling basis. By construction, performance combination weights can vary over time, allowing for changes in preferences across performance measures. An empirical example shows the benefits of our approach compared to naive screening rules based on the Sharpe ratio. (C) 2015 Elsevier Inc. All rights reserved.

Backward/forward optimal combination of performance measures for equity screening

BILLIO, Monica;CAPORIN, Massimiliano;COSTOLA, MICHELE
2015

Abstract

We introduce a novel criterion for performance measure combination designed to be used as an equity screening algorithm. The proposed approach follows the general idea of linearly combining selected performance measures with positive weights and combination weights are determined by means of an optimisation step. The underlying criterion function takes into account the risk-return trade-off potentially associated with the equity screens, evaluated on a historical and rolling basis. By construction, performance combination weights can vary over time, allowing for changes in preferences across performance measures. An empirical example shows the benefits of our approach compared to naive screening rules based on the Sharpe ratio.
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Utilizza questo identificativo per citare o creare un link a questo documento: http://hdl.handle.net/10278/3663332
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