Neuro-Fuzzy Modeling Techniques in Economics

Neuro-Fuzzy Modeling Techniques in Economics

Fuzzy clustering approach to portfolio management considering ESG criteria: empirical evidence from the investment strategies of the EURO STOXX Index



Abstract: Environmental, social and governance (ESG) criteria are becoming increasingly important in the construction of investment portfolios. Analysis of the investment markets confirms that these criteria are being actively integrated into investment strategies. This paper presents our approach to incorporating ESG criteria into the portfolio construction process based on an index investment strategy. This strategy is enhanced by the inclusion of ESG criteria in the form of ESG scoring. Investment portfolio construction focuses on the application of three criteria: maximizing ESG score, minimizing risk and maximizing expected return. Our approach applies a fuzzy clustering toolkit to the set of index components. In the resulting fuzzy clusters, their core part (companies that do not belong to other clusters) and the fuzzy part are separated. The proposed investment strategy involves the construction of portfolios with a variation of the components of the fuzzy part. A VAWI (Value Added Weekly Index) curve is designed for each portfolio. The optimal strategy is implemented by constructing and reconstructing portfolios according to the upper line of the VAWI set. This investment strategy is demonstrated using the example of the EURO STOXX 50 index, which includes large companies from 11 Eurozone countries.
Ключові слова:
Key words: stock market, stock index, ESG criteria, ESG score, portfolio optimization, fuzzy clustering, portfolio performance evaluation

JEL: C45 G11 Q01

To cite paper
In APA style
Kaminskyi, A., & Nehrey, M. (2023). Fuzzy clustering approach to portfolio management considering ESG criteria: empirical evidence from the investment strategies of the EURO STOXX Index. Neuro-Fuzzy Modeling Techniques in Economics, 12, 40-66.
In MON style
Камінський А.Б., Негрей М.В. Fuzzy clustering approach to portfolio management considering ESG criteria: empirical evidence from the investment strategies of the EURO STOXX Index. Нейро-нечіткі технології моделювання в економіці. 2023. № 12. С. 40-66. (дата звернення: 23.07.2024).
With transliteration
Kaminskyi, A., Nehrey, M. (2023) Fuzzy clustering approach to portfolio management considering ESG criteria: empirical evidence from the investment strategies of the EURO STOXX Index. Neuro-Fuzzy Modeling Techniques in Economics, no. 12. pp. 40-66. (accessed 23 Jul 2024).
# 12 / 2023 # 12 / 2023
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