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Primary Article

Enhanced Index Investing Based on Goal Programming

Liang-Chuan Wu, Seng-Cho Chou, Chau-Chen Yang and Chorng-Shyong Ong
The Journal of Portfolio Management Spring 2007, 33 (3) 49-56; DOI: https://doi.org/10.3905/jpm.2007.684753
Liang-Chuan Wu
A doctoral student in information management at the College of Management of National Taiwan University in Taipei.
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  • For correspondence: d92010@im.ntu.edu.tw
Seng-Cho Chou
Professor of information management at the College of Management of National Taiwan University.
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  • For correspondence: chou@im.ntu.edu.tw
Chau-Chen Yang
A professor of finance at the College of Management of National Taiwan University.
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  • For correspondence: yang@management.ntu.edu.tw
Chorng-Shyong Ong
Professor of information management at the College of Management of National Taiwan University.
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  • For correspondence: ongcs@im.ntu.edu.tw
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Abstract

Enhanced index investing involves tracking a benchmark index closely and using risk-controlled strategies to add modest value to the index. The typical approaches to construction of such portfolios involve subjective management judgments. A new approach to enhanced indexing instead formulates the problem as a dual-criteria goal programming problem. Unlike the traditional approaches, which require a fund manager to buy and sell stocks actively in order to improve returns, the proposed approach is based on the passive management of a small number of stocks. Empirical results from tests in the Taiwan stock market suggest the new approach incurs lower transaction costs and produces sustainable risk-controlled enhanced returns.

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Vol. 33, Issue 3
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Enhanced Index Investing Based on Goal Programming
Liang-Chuan Wu, Seng-Cho Chou, Chau-Chen Yang, Chorng-Shyong Ong
The Journal of Portfolio Management Apr 2007, 33 (3) 49-56; DOI: 10.3905/jpm.2007.684753

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Enhanced Index Investing Based on Goal Programming
Liang-Chuan Wu, Seng-Cho Chou, Chau-Chen Yang, Chorng-Shyong Ong
The Journal of Portfolio Management Apr 2007, 33 (3) 49-56; DOI: 10.3905/jpm.2007.684753
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