Dynamic Trading Strategies and Portfolio Choice

Ravi Bansal, Magnus Dahlquist and Campbell Harvey ()
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Magnus Dahlquist: Swedish Institute for Financial Research, Postal: Swedish Institute for Financial Research, Saltmätargatan 19A, 4th fl., SE-113 59 Stockholm, Sweden

No 31, SIFR Research Report Series from Institute for Financial Research

Abstract: Traditional mean-variance efficient portfolios do not capture the potential wealth creation opportunities provided by predictability of asset returns. We propose a simple method for constructing optimally managed portfolios that exploits the possibility that asset returns are predictable. We implement these portfolios in both single and multi-period horizon settings. We compare alternative portfolio strategies which include both buy-and-hold and fixed weight portfolios. We find that managed portfolios can significantly improve the mean-variance trade-off, in particular, for investors with investment horizons of three to five years. Also, in contrast to popular advice, we show that the buy-and-hold strategy should be avoided.

Keywords: Dynamic strategies; mean-variance optimization; multiperiod choice; efficient frontier; buy-and-hold investment (search for similar items in EconPapers)
JEL-codes: G11 G12 (search for similar items in EconPapers)
Pages: 26 pages
Date: 2004-10-15
New Economics Papers: this item is included in nep-fin
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (12)

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Persistent link: https://EconPapers.repec.org/RePEc:hhs:sifrwp:0031

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