Optimal trend following portfolios

Sebastien Valeyre

Papers from arXiv.org

Abstract: This paper derives an optimal portfolio that is based on trend-following signal. Building on an earlier related article, it provides a unifying theoretical setting to introduce an autocorrelation model with the covariance matrix of trends and risk premia. We specify practically relevant models for the covariance matrix of trends. The optimal portfolio is decomposed into four basic components that yield four basic portfolios: Markowitz, risk parity, agnostic risk parity, and trend following on risk parity. The overperformance of the proposed optimal portfolio, applied to cross-asset trading universe, is confirmed by empirical backtests. We provide thus a unifying framework to describe and rationalize earlier developed portfolios.

Date: 2022-01
New Economics Papers: this item is included in nep-cwa and nep-rmg
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Published in Journal of investment stategies 2024 12(3)

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Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:2201.06635

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