Robo-advisor using closed-form solutions for investors’ risk preferences

Zhi-Long Dong, Min-Xing Zhu and Feng-Min Xu

Applied Economics Letters, 2022, vol. 29, issue 16, 1470-1477

Abstract: In this article, we design a robo-advisor which has a bi-level framework. The framework enables it to handle a large amount of assets using fast algorithms in the lower level. The proposed robo-advisor can utilize the closed-form solutions for investors’ risk preferences based on corresponding portfolio choices. A dynamic weight is applied to update investors’ risk preferences. Numerical results based on real data in Chinese stock market show that our proposed robo-advisor can accurately estimate the risk preferences of investors and outperform the benchmark formed by market indexes.

Date: 2022
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DOI: 10.1080/13504851.2021.1937495

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