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Positional Portfolio Management

80 Pages Posted: 7 Mar 2014 Last revised: 17 Sep 2016

Patrick Gagliardini

University of Lugano and Swiss Finance Institute; Ecole Polytechnique Fédérale de Lausanne - Ecole Polytechnique Fédérale de Lausanne

Christian Gourieroux

University of Toronto - Department of Economics; Center for Interuniversity Research and Analysis on Organization (CIRANO); Ecole Nationale de la Statistique et de l'Administration Economique (ENSAE); National Bureau of Economic Research (NBER)

Mirco Rubin

University of Bristol

Date Written: March 1, 2016

Abstract

We study positional portfolio management strategies in which the manager maximizes an expected utility function written on the cross-sectional rank (position) of the portfolio return. The objective function reflects the manager’s goal to be well-ranked among competitors. To implement positional allocation strategies, we specify a nonlinear unobservable factor model for the asset returns which disentangles the dynamics of the cross-sectional distribution and the dynamics of the ranks of the individual assets. Using a large dataset of stocks returns we find that positional strategies outperform standard momentum, reversal and mean-variance allocation strategies, as well as equally weighted portfolio for criteria based on position.

Keywords: Positional Good, Robust Portfolio Management, Rank, Fund Tournament, Factor Model, Big Data, Equally Weighted Portfolio, Momentum, Reversal, Positional Risk Aversion.

JEL Classification: C38, C55, G11

Suggested Citation

Gagliardini, Patrick and Gourieroux, Christian and Rubin, Mirco, Positional Portfolio Management (March 1, 2016). Swiss Finance Institute Research Paper No. 14-20. Available at SSRN: https://ssrn.com/abstract=2405392 or http://dx.doi.org/10.2139/ssrn.2405392

Patrick Gagliardini

University of Lugano and Swiss Finance Institute ( email )

Via Buffi 13
CH-6900 Lugano
Switzerland

HOME PAGE: http://www.istituti.usilu.net/gagliarp/

Ecole Polytechnique Fédérale de Lausanne - Ecole Polytechnique Fédérale de Lausanne

c/o University of Geneve
40, Bd du Pont-d'Arve
1211 Geneva, CH-6900
Switzerland

Christian Gourieroux

University of Toronto - Department of Economics ( email )

150 St. George Street
Toronto, Ontario M5S 3G7
Canada
416-978-4349 (Phone)
416-978-6713 (Fax)

Center for Interuniversity Research and Analysis on Organization (CIRANO) ( email )

2020 rue University, 25th Floor
Montreal, Quebec H3C 3J7
Canada

Ecole Nationale de la Statistique et de l'Administration Economique (ENSAE) ( email )

15 Boulevard Gabriel Peri
92245 Malakoff Cedex
France
33.4117.7666 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Mirco Rubin (Contact Author)

University of Bristol ( email )

School of Economics, Finance and Management
12 Priory Road
Bristol, BS8 1TU
United Kingdom
+44 (0) 117 95 46 643 (Phone)

HOME PAGE: http://https://sites.google.com/site/mircorubin/

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