Date of Graduation
5-2022
Document Type
Thesis
Degree Name
Bachelor of Science in Business Administration
Degree Level
Undergraduate
Department
Finance
Advisor/Mentor
Rennie, Craig
Committee Member/Reader
Santamaria, Sergio
Abstract
The purpose of the study is to investigate whether a portfolio manager could enhance his/her portfolio optimization strategy by periodically adjusting the equity sector weights to a diversified stock portfolio. The business cycle approach focuses on providing a framework for adjusting sector weightings to take advantage of recurring trends in economic growth that signal a phase transition soon. Once a shift in stages is detected, investors are advised to adjust their portfolio to overweight a specific sector that is projected to outperform in the next phase of the cycle and to offset exposure in sectors that tend to underperform during the same period. To optimize portfolio returns with minimal risk, the business cycle approach must align with macro-fundamental analysis metrics to identify unique variables in each sector that can significantly impact its performance. This study proposes using the Conference Board Leading Economic Indicator Index (LEI) to reformat the initial business cycle framework created by Burns and Mitchell (1946) and evaluate the performance of S&P 500 sector indices since 1993.
Keywords
Portfolio optimization, Diversified Stock Portfolio, Business Cycle Approach, Macro-fundamental Analysis, Conference Board Leading Economic Indicator Index (LEI), service learning
Citation
Kane, M. (2022). Portfolio Optimization Using the Business Cycle Approach. Finance Undergraduate Honors Theses Retrieved from https://scholarworks.uark.edu/finnuht/85