Validity Comparison Of Investment Strategies

International investment becomes more and more common as the national capitalmarket continuingly open up and whether it can realize expected investment target isreceiving more attention. And, for most of investors, the main purpose of diversificationamong international market is hedging and adding value for their assets. That is,diversifying the portfolio risk is not just the only concern any more, but also expectedreturn should be raised as well. Hence, with the world’s economy globalizing,maximizing the benefit from international investment will prone to applying more validinvestment strategies.Based on recent research on the equally weighted portfolio, minimum varianceportfolio and tangency portfolio, we propose three effectively objective portfolios underthe international diversification investment background, respectively, those are optimalcertainty-equivalent return combination of the na ve1/N strategy and minimumcovariance portfolio,(α,H)-based international investment strategies which bindsmean-variance portfolio selection with downside risk VaR method and minimumvariance of tracking the domestic index error strategy from the perspective of Chineseinvestors. Then we report both stimulation results and empirical results, and comparewith each other based on their Shape ratio, it shows that:First, in restriction of short sale, optimal certainty-equivalent return combination ofthe (Max CEQ) outperforms in out of sample Sharpe ratio and certainty equivalentreturn and yields equivalent and even lower variance which means it is a competitivestrategy, but it also turns out a comparatively larger turnover;Second,(α,H)-based international investment strategy cannot outperform optimalcertainty-equivalent return combination, however, whether allowing short selling or not,return and Sharpe ration of (α, H)-based international investment strategy is higher thanminimum covariance portfolio and na ve1/N strategy, and it takes further considerationof the risk aversion and target investment return and realizes the different targets ofvaries of risk aversion types. Third, minimum tracking error variance strategy can realize as high Sharpe rationas (α, H)-based international investment strategy under short sell restriction, and evenhigher when allowing short-selling. It achieves expected return as high as in domesticinvestment and keeps the international diversification benefit as well.In summary, the proposed investment strategies flexibly combined investmentexpected targets and meet the needs of different risk aversion of investors, resulting inachievement of comparatively stable expected return which offers investors somereferences in practice.