Faculty of Economics and Business Administration Publications Database

A Formal Model for Investment Strategies to Enable Automated Stock Portfolio Management

Gottschlich, Jörg
Forst, Nikolas
Link External Source: Online Version
Year: 2014

In this paper, we develop a formal model to specify a stock investment strategy. Based on an extensive review of investment literature, we identify determinants for portfolio performance – such as risk attitude, rebalancing interval or number of portfolio positions – and formalize them as model components. With this model, we aim to bridge the gap between pure decision support and algorithmic trading systems by enabling the implementation of investment approaches into an executable specification which forms the foundation of an automated portfolio management system. Such a system helps researchers and practitioners to specify, test, compare and execute investment approaches with strong automation support. To ensure the technical applicability of our model, we implement a prototype and use it to show the effectiveness of the model components on portfolio performance by running several investment scenarios.