Keyword portfolio optimization in paid search advertising

Efthymia Symitsi, Raphael N. Markellos, Murali K. Mantrala

Research output: Contribution to journalArticlepeer-review

Abstract

This paper uses investment portfolio theory to determine budget allocation in paid online search advertising. The approach focuses on risk-adjusted performance and favors diversified portfolios of unrelated or negatively correlated keywords. An empirical investigation employs averages, variances and co-variances for keyword popularities, which are estimated using growth rates for 15 major sectors taken from the Google Trends database. In line with portfolio theory, the results show that the average keyword popularity growth is strongly related to the standard deviation of growth for each keyword in the sample (R2 = 74%). Hypothesis testing of differences in Sharpe ratios documents a significantly better performance of the proposed approach compared to that of other strategies currently used by practitioners.
Original languageEnglish
JournalEuropean Journal of Operational Research
Early online date12 Mar 2022
DOIs
Publication statusE-pub ahead of print - 12 Mar 2022

Keywords

  • Budget allocation
  • Markowitz portfolio theory
  • OR In marketing
  • Paid search advertising
  • Search volume index

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