Backward/forward optimal combination of performance measures for equity screening

•Present a novel methodology for the combination of performance measures.•Discuss implementation issues.•Present an empirical example showing the potential advantages of the combination within an equity screening framework.

We introduce a novel criterion for performance measure combination designed to be used as an equity screening algorithm. The proposed approach follows the general idea of linearly combining selected performance measures with positive weights and combination weights are determined by means of an optimisation step. The underlying criterion function takes into account the risk-return trade-off potentially associated with the equity screens, evaluated on a historical and rolling basis. By construction, performance combination weights can vary over time, allowing for changes in preferences across performance measures. An empirical example shows the benefits of our approach compared to naive screening rules based on the Sharpe ratio.