Mostly Prior-Free Asset Allocation

34 Pages Posted: 16 Feb 2018

See all articles by Sylvain Chassang

Sylvain Chassang

New York University (NYU) - Department of Economics

Date Written: February 14, 2018

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.

Keywords: prior-free asset allocation, minmax drawdown control, nonstationary returns, fear-of-missing-out, fear-of-loss, regret aversion

Suggested Citation

Chassang, Sylvain, Mostly Prior-Free Asset Allocation (February 14, 2018). Journal of Risk, Forthcoming. Available at SSRN: https://ssrn.com/abstract=3123774

Sylvain Chassang (Contact Author)

New York University (NYU) - Department of Economics ( email )

19 West 4th Street
New York, NY 10012
United States

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