A heuristic approach to the index tracking problem: A case study of the Tehran Exchange Price Index

Mohsen Varsei, Naser Shams, Behnam Fahimnia, Abbas Yazdanpanah

Research output: Contribution to journalArticlepeer-review

7 Citations (Scopus)

Abstract

Index tracking, the most popular form of passive fund management, is a portfolio selection problem in which the return of one of the stock market indexes is reproduced by creating a tracking portfolio consisting of a subset of the stocks included in the index. Index tracking has been known as an NP-Hard problem, and sophisticated approaches have been proposed in the literature to solve this problem. This paper presents an easy-to-implement heuristic solution to this complex problem. The proposed approach was implemented to develop a tracking portfolio of 438 stocks listed in the Tehran Exchange Price Index. The numerical results indicate that the approach is able to identify quality solutions within reasonable model runtime.
Original languageEnglish
Pages (from-to)19-34
Number of pages16
JournalAsian Academy of Management Journal
Volume18
Issue number1
Publication statusPublished - 18 Oct 2013
Externally publishedYes

Keywords

  • Fund management
  • Heuristic approach
  • Index tracking
  • Portfolio selection

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