Robust portfolio asset allocation

Selection of stocks in a portfolio of shares represents a very interesting problem of 'optimal classification'. Often such optimal allocation is determined by second-order conditions which are very sensitive to outliers. Classical Markowitz estimators of the covariance matrix seem to provide poor results in financial management, so we propose an alternative way of weighting observations by using a forward search approach. An application to real data, which shows the advantages of the proposed approach is given at the end of this work. © Springer-Verlag Berlin Heidelberg 2011.