Dynamic Trading Strategies and Portfolio Choice

28 Pages Posted: 19 Oct 2004 Last revised: 27 Jul 2010

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: October 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.

Suggested Citation

Bansal, Ravi and Harvey, Campbell R. and Dahlquist, Magnus, Dynamic Trading Strategies and Portfolio Choice (October 2004). NBER Working Paper No. w10820, Available at SSRN: https://ssrn.com/abstract=601122

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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