An Empirical Investigation on Omega Optimized Stock Portfolio
An Empirical Investigation on Omega Optimized Stock Portfolio

Summary/Abstract: This paper considers portfolio optimisation with respect to the Omega function, proposed by Keating & Shadwick, and investigates its empirical performance compared with the traditional approaches for portfolio optimisation. The results were in-line with expectations: omega-optimised portfolio surpassed the performance of equally weighted portfolio and meanvariance portfolios based on sample estimates and was inferior only to, or equalled portfolios based on regularised estimates of the covariance matrix. In addition, it can be stated that optimisation of the Omega function was based on historical returns used as “scenarios”, so it can be reasonably expected to receive better results by using inputs or scenarios obtained by more sophisticated methods.

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