Optimization strategies in portfolio management: Do they influence performance?

Abstract

The study assesses the relative out-of-sample performance of different portfolio optimization strategies across four mean-risk frameworks and a benchmark naïve (1/N) strategy using weekly price data of a stock index, foreign currency, gold, natural gas, and crude oil from December 1997 to December 2023. For each mean-risk framework, we employ two optimization strategies: risk minimization and Sharpe ratio maximization. Using various risk-adjusted and economic measures, the out-of-sample performance analysis of all the strategies suggests that the Sharpe ratio maximization strategy of the mean-CVaR framework is the best performing model, while the variance minimization model of the mean-variance framework performs worst.