Large scale mean-variance strategies in the U.S. stock market

Luca Pezzo, Lei Wang and Duygu Zirek

Research in International Business and Finance, 2023, vol. 66, issue C

Abstract: We provide an extensive analysis of the profitability of large-scale Mean-Variance (MV) strategies in the US stock market. Implementing MV strategies has never been so rewarding as recently. MV strategies work best in periods where their parameters are more accurately estimated, making strategies more stable and able to adapt to changes in the investment opportunity set. Minimizing over costs is better than going for the classical approach, especially for strategies that target higher returns. This is because cost optimization puts a stabilizing economic bound on the weights, lowering downside risk and enabling better scaling, while driving execution costs toward zero.

Keywords: Mean-Variance; Market-timing; Estimation error; Transaction costs; Profitability (search for similar items in EconPapers)
JEL-codes: C61 D23 G11 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:riibaf:v:66:y:2023:i:c:s0275531923001885

DOI: 10.1016/j.ribaf.2023.102062

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