Dynamic Trading Strategies and Portfolio Choice
Duke University and NBER
Campbell R. Harvey
Duke University - Fuqua School of Business; National Bureau of Economic Research (NBER)
Stockholm School of Economics
September 23, 2004
Traditional mean-variance efficient portfolios do not capture the potential wealth creation opportunities provided by predictability of asset returns. We propose a simple method for constructing optimally managed portfolios that exploits the possibility that asset returns are predictable. We implement these portfolios in both single and multi-period horizon settings. We compare alternative portfolio strategies which include both buy-and-hold and fixed weight portfolios. We find that managed portfolios can significantly improve the mean-variance trade-off, in particular, for investors with investment horizons of three to five years. Also, in contrast to popular advice, we show that the buy-and-hold strategy should be avoided.
Number of Pages in PDF File: 27
Keywords: Dynamic strategies, mean-variance optimization, multiperiod choice, efficient frontier, buy-and-hold investment
JEL Classification: G11, G12working papers series
Date posted: September 24, 2004
© 2014 Social Science Electronic Publishing, Inc. All Rights Reserved.
This page was processed by apollo7 in 0.265 seconds