Backward/Forward Optimal Combination of Performance Measures for Equity Screening
31 Pages Posted: 29 Jul 2012
Date Written: July 1, 2012
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 existing performance measures with positive weights and the combination weights are determined by means of an optimisation problem. 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 or our approach compared to naive screening rules based on the Sharpe ratio.
Keywords: performance measures, combining performance measures, portfolio
JEL Classification: C44, C58, C61, G11, G17
Suggested Citation: Suggested Citation
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