Sparse Index Tracking: Simultaneous Asset Selection and Capital Allocation via ℓ0 -Constrained Portfolio
Eisuke Yamagata,
Shunsuke Ono
Abstract:Sparse index tracking is a prominent passive portfolio management strategy that constructs a sparse portfolio to track a financial index. A sparse portfolio is preferable to a full portfolio in terms of reducing transaction costs and avoiding illiquid assets. To achieve portfolio sparsity, conventional studies have utilized ℓ p -norm regularizations as a continuous surrogate of the ℓ 0 -norm regularization. Although these formulations can construct sparse portfolios, their practical application is challenging … Show more
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