Mostly prior-free asset allocation | Zendy

Sylvain Chassang | Zendy

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Mostly prior-free asset allocation

Author(s) -

Sylvain Chassang

Publication year - 2018

Publication title -

the journal of risk

Language(s) - English

Resource type - Journals

SCImago Journal Rank - 0.224

H-Index - 11

eISSN - 1755-2842

pISSN - 1465-1211

DOI - 10.21314/jor.2018.396

Subject(s) - asset allocation , exploit , portfolio , economics , asset (computer security) , portfolio allocation , modern portfolio theory , decision maker , optimal allocation , computer science , microeconomics , actuarial science , mathematical optimization , financial economics , mathematics , management science , computer security

This paper develops a prior-free version of Markowitz (1952)â€™s efficient portfolio theory that allows the decision maker to express preferences over risk and reward, even though she is unable to express a prior over potentially non-stationary returns. The corresponding optimal allocation strategies are admissible, interior, and exhibit a form of momentum. Empirically, prior-free efficient allocation strategies successfully exploit time-varying risk premium present in historical returns.

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