Mostly Prior-Free Asset Allocation

Sylvain Chassang
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Sylvain Chassang: Princeton University

Working Papers from Princeton University, Department of Economics, Econometric Research Program.

Abstract: This paper develops a prior-free version of Markowitz (1952)’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.

Keywords: prior-free portfolios; non-stationary returns; time-varying risk premium; fear-of-missing out; fear-of-loss; regret aversion; drawdown frontier (search for similar items in EconPapers)
JEL-codes: G11 (search for similar items in EconPapers)
Date: 2016-01
New Economics Papers: this item is included in nep-rmg and nep-upt
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Persistent link: https://EconPapers.repec.org/RePEc:pri:metric:077_2016

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