Mostly prior-free asset allocation

Research output: Contribution to journalArticle

Abstract

This paper develops a prior-free version of Harry Markowitz’s efficient portfolio theory, which allows the decision maker to express their preferences with regard to risk and reward, even though they are unable to express a prior over potentially nonstationary returns. The corresponding optimal allocation strategies are admissible and interior, and they exhibit a form of momentum. Empirically, prior-free efficient allocation strategies successfully exploit the time-varying risk premiums present in historical returns.

Original languageEnglish (US)
Pages (from-to)1-35
Number of pages35
JournalJournal of Risk
Volume21
Issue number2
DOIs
StatePublished - Dec 2018
Externally publishedYes

All Science Journal Classification (ASJC) codes

  • Finance
  • Strategy and Management

Keywords

  • Fear-of-loss
  • Fear-ofmissing-out
  • Minmax drawdown control
  • Nonstationary returns
  • Prior-free asset allocation
  • Regret aversion

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