  This paper investigates performance attribution measures as a basis for
constraining portfolio optimization. We employ optimizations that minimize
expected tail loss and investigate both asset allocation (AA) and the selection
effect (SE) as hard constraints on asset weights. The test portfolio consists
of stocks from the Dow Jones Industrial Average index; the benchmark is an
equi-weighted portfolio of the same stocks. Performance of the optimized
portfolios is judged using comparisons of cumulative price and the
risk-measures maximum drawdown, Sharpe ratio, and Rachev ratio. The results
suggest a positive role in price and risk-measure performance for the
imposition of constraints on AA and SE, with SE constraints producing the
larger performance enhancement.

Risk Management;Portfolio Management