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About this paper
Giacomo di Tollo, Massimiliano Kaucic, Filippo Piccotto
A two-stage decision support system is introduced to optimize sustainability-aware long-short portfolios by integrating ESG criteria directly into an asset screening process and employing an adaptive metaheuristic to maximize the Omega ratio. This framework demonstrated competitive to superior performance in risk-adjusted returns and downside protection compared to non-ESG portfolios and market benchmarks over a decade of European equity data.
Key insights
- Embedding ESG indicators directly into the pre-selection phase, rather than just as constraints, enables more genuinely sustainable and resilient long-short portfolios.
- Dynamic, market-phase-aware asset classification using MCDM provides a robust and behaviorally consistent approach to segmenting assets for long-short strategies.
- The AMPSO algorithm effectively navigates complex, non-convex optimization landscapes, demonstrating superior performance and faster convergence for maximizing the Omega ratio under real-world financial constraints.
Summary by alphaXiv.
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