Mostly prior-free asset allocation

Sylvain Chassang

    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

    Keywords

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

    ASJC Scopus subject areas

    • Finance
    • Strategy and Management

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