Portfolio Selection under Median and Quantile Maximization

Xue Dong He, Zhaoli Jiang and Steven Kou

Papers from arXiv.org

Abstract: Although maximizing median and quantiles is intuitively appealing and has an axiomatic foundation, it is difficult to study the optimal portfolio strategy due to the discontinuity and time inconsistency in the objective function. We use the intra-personal equilibrium approach to study the problem. Interestingly, we find that the only viable outcome is from the median maximization, because for other quantiles either the equilibrium does not exist or there is no investment in the risky assets. The median maximization strategy gives a simple explanation to why wealthier people invest more percentage of their wealth in risky assets.

Date: 2020-08, Revised 2021-03
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