Strategy of global asset allocation using extended classifier system

Authors:
Wen-Chih Tsai;An-Pin Chen
Affiliations:
National Chiao-Tung University, Institute of Information Management, Hsinchu 30050, Taiwan;National Chiao-Tung University, Institute of Information Management, Hsinchu 30050, Taiwan
Venue:
Expert Systems with Applications: An International Journal
Year:
2010

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Abstract

There are several studies about extended classification system (XCS) in past years. XCS model can dynamically learn and adapt to the change of environments for maximizing the desired goals. This paper conducts simulation to apply XCS to global asset allocation in the country-specific exchanged traded funds (ETFs). Since international stock price trend is influenced by unknown and unpredictable surroundings, using XCS to model the fluctuations on global financial market allows for the discovery of the patterns of the future trends. As such, the benefits of international asset diversification can be achieved in a tax-efficient way with country-specific ETFs at a low transaction cost with minimized tracking error. These empirical results indicate that XCS is capable of evolving over time, and thus XCS can provide a good indicator for future global asset allocation decision-making aiming at maximized profit.