Stock Portfolio Management in the Presence of Downtrends Using Computational Intelligence

Abstract

Stock portfolio management consists of defining how some investment resources should be allocated to a set of stocks. It is an important component in the functioning of modern societies throughout the world. However, it faces important theoretical and practical challenges. The contribution of this work is two-fold: first, to describe an approach that comprehensively addresses the main activities carried out by practitioners during portfolio management (price forecasting, stock selection and portfolio optimization) and, second, to consider uptrends and downtrends in prices. Both aspects are relevant for practitioners but, to the best of our knowledge, the literature does not have an approach addressing them together. We propose to do it by exploiting various computational intelligence techniques. The assessment of the proposal shows that further improvements to the procedure are obtained when considering downtrends and that the procedure allows obtaining portfolios with better returns than those produced by the considered benchmarks. These results indicate that practitioners should consider the proposed procedure as a complement to their current methodologies in managing stock portfolios.

Keywords

• short selling
• stock portfolios
• artificial neural networks
• evolutionary algorithms
• computational intelligence