Mostly Prior-Free Asset Allocation
54 Pages Posted: 4 Feb 2016
Date Written: January 18, 2016
Abstract
This paper develops a prior-free version of Markowitz (1952)'s efficient portfolio theory that allows the decision maker to express preferences over risk and reward, even though she is unable to express a prior over potentially non-stationary returns. The corresponding optimal allocation strategies are admissible, interior, and exhibit a form of momentum. Empirically, prior-free efficient allocation strategies successfully exploit time-varying risk premium present in historical returns.
Keywords: prior-free portfolios, non-stationary returns, time-varying risk premium
Suggested Citation: Suggested Citation
Chassang, Sylvain, Mostly Prior-Free Asset Allocation (January 18, 2016). Princeton University William S. Dietrich II Economic Theory Center Research Paper No. 077_2016, Available at SSRN: https://ssrn.com/abstract=2727191 or http://dx.doi.org/10.2139/ssrn.2727191
Do you have negative results from your research you’d like to share?
Feedback
Feedback to SSRN
If you need immediate assistance, call 877-SSRNHelp (877 777 6435) in the United States, or +1 212 448 2500 outside of the United States, 8:30AM to 6:00PM U.S. Eastern, Monday - Friday.