This research will present the formation of stock portfolios by preprocessing data using time series clustering with a distance measure of Dynamic Time Warping (DTW). First, stocks are grouped into several clusters using the Partitioning Around Medoids (PAM) time series cluster based on the DTW distance measure. After the clustering process, stocks are selected to represent each cluster to build the optimum portfolio. The stock selected from each cluster is the one with the highest Sharpe ratio. The optimal portfolio is determined using three portfolio models, namely: the classic MV portfolio model, the FMCD robust MV portfolio model and the S robust portfolio model. Using this procedure, an optimum portfolio can be obtained efficiently if there are many stocks involved in the portfolio formation process. Sharpe ratio is used to measure the performance of the portfolios. The results of the empirical study show that the portfolio performance generated using the PAM time series clustering with DWT distance dissimilarity measure combined with the classic MV portfolio model outperforms the resulting portfolio performance in combination with other models.
This paper presents the dynamics of Jakarta Composite Index (JCI) where the data were observed daily from January 2008 to October 2012. The data are presented in candle forms, as often used in online trading software. Statistical analysis on the average and the variance is applied on every month candle representations. The average and the standard deviation may vary on each candle, meaning that they depend on time. The average that depends on time indicates a trend of the dynamics. On the other hand, the average and the standard deviation yield the so-called probability density function (pdf) which depends on time called temporal-pdf (t-pdf). The trend and the probability of the dynamics of JCI are implicitly represented in the t-pdf. The t-pdf of the dynamics of JCI is the main concern of this paper. Understanding the t-pdf will help investors deal with the dynamics of JCI.
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