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Portfolio Management Using Statistical Process Control Chart  

Kim, Dong-Sup (Division of Information Management Engineering, Korea University)
Ryoo, Hong-Seo (Division of Information Management Engineering, Korea University)
Publication Information
IE interfaces / v.20, no.2, 2007 , pp. 94-102 More about this Journal
Abstract
Portfolio management deals with decision making on 'when' and 'how' to revise an existing portfolio. In this paper, we show that a classical statistical process control (SPC) chart for normal data, a wellestablished tool in quality engineering, can effectively be used for signaling times for revising a portfolio. Noting that the day-to-day performance of a portfolio may be auto-correlated, we use the exponentially weighted moving average center-line chart to develop an automatic portfolio management procedure. The portfolio management procedure is extensively tested on historical data of equities traded in the Korea Exchange (KRX), the American Stock Exchange (AMEX), and the New York Stock Exchange (NYSE). In comparison with the performances of the KOSPI, XAX, and NYA indices during the same time periods, results from these experiments show that SPC chart-based portfolio revision presents itself a convenient and reliable method for optimally managing portfolios.
Keywords
portfolio revision; statistical process control chart; KRX; AMEX; NYSE;
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