Dynamic Trading Strategies and Portfolio Choice

27 Pages Posted: 24 Sep 2004

See all articles by Ravi Bansal

Ravi Bansal

Duke University and NBER

Campbell R. Harvey

Duke University - Fuqua School of Business; National Bureau of Economic Research (NBER)

Magnus Dahlquist

Stockholm School of Economics; Swedish House of Finance

Multiple version iconThere are 2 versions of this paper

Date Written: September 23, 2004

Abstract

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.

Keywords: Dynamic strategies, mean-variance optimization, multiperiod choice, efficient frontier, buy-and-hold investment

JEL Classification: G11, G12

Suggested Citation

Bansal, Ravi and Harvey, Campbell R. and Dahlquist, Magnus, Dynamic Trading Strategies and Portfolio Choice (September 23, 2004). Available at SSRN: https://ssrn.com/abstract=594845 or http://dx.doi.org/10.2139/ssrn.594845

Ravi Bansal

Duke University and NBER ( email )

Box 90120
Durham, NC 27708-0120
United States
919-660-7758 (Phone)
919-660-8038 (Fax)

Campbell R. Harvey (Contact Author)

Duke University - Fuqua School of Business ( email )

Box 90120
Durham, NC 27708-0120
United States
919-660-7768 (Phone)

HOME PAGE: http://www.duke.edu/~charvey

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Magnus Dahlquist

Stockholm School of Economics ( email )

Drottninggatan 98
Stockholm, SE-111 60
Sweden

Swedish House of Finance ( email )

Drottninggatan 98
111 60 Stockholm
Sweden

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