Managing Portfolios Across the Return Distribution

Jozef Baruník, Lukas Janasek and Attila Sarkany

Papers from arXiv.org

Abstract: We develop a dynamic portfolio-choice framework in which investors target the region of the payoff distribution that the portfolio is designed to improve. Out of sample, the estimated policies form an ordered frontier: the policy focused on the downside delivers the strongest left-tail protection and the highest Sharpe ratio, while the policy focused on the upper quantile earns the highest mean return. The gains over volatility-managed portfolios are concentrated in periods when downside-tail dispersion is high. Evidence from fund flows in income, growth and downside protection products supports the interpretation of the quantile index as a reduced-form mandate measure.

Date: 2025-10, Revised 2026-06
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