80 Pages Posted: 7 Mar 2014 Last revised: 17 Sep 2016
Date Written: March 1, 2016
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: 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