Value Ranked Equity Portfolios via Entropy Pooling

This article demonstrates how to directly incorporate common value investing ideas in the portfolio optimization process. Through minimizing the relative entropy, multiple value rankings are merged with the historical return distribution. This approach yields performance improvements both from a diversification and a predictive perspective across various international stock markets. The predictive component can be attributed to a specific value tilt of the portfolios. Increasing the confidence in the value rankings smoothly exposes a portfolio to the desired value factor