Family groupings on performance of portfolio selection in the Hong Kong stock market

In this paper, we propose to construct efficient portfolios in the Hong Kong stock market by making use of a homogeneous grouping of stocks based on common family ownership. After taking family grouping into account, it is found that correlation structure of stocks' price movements can be predicted more accurately. Also portfolios can be constructed so that its performance in a future period are better than those constructed under a single index model or a multi-index model using standard industry classification as grouping criteria for stocks.