Semiparametric dynamic portfolio choice with multiple conditioning variables

Jia Chen, Degui Li, Oliver Linton and Zudi Lu
Additional contact information
Zudi Lu: Institute for Fiscal Studies

No CWP07/15, CeMMAP working papers from Centre for Microdata Methods and Practice, Institute for Fiscal Studies

Abstract: Dynamic portfolio choice has been a central and essential objective for institutional investors in active asset management. In this paper, we study the dynamic portfolio choice depending on multiple conditioning variables, where the number of the conditioning variables can be either fixed or diverging to infinity at certain polynomial rate in comparison with the sample size. We propose a novel data-driven method to estimate the nonparametric optimal portfolio choice, motivated by the model averaging marginal regression approach suggested by Li, Linton and Lu (2014). Specifically, in order to avoid curse of dimensionality associated with the problem and to make it practically implementable, we first estimate the optimal portfolio choice by maximising the conditional utility function for each individual conditioning variable, and then construct the dynamic optimal portfolio choice through the weighted average of the marginal optimal portfolio across all the conditioning variables. Under some mild regularity conditions, we have established the large sample properties for the developed portfolio choice procedure. Both simulation studies and empirical application well demonstrate the performance of the proposed methodology with finite sample and real data.

JEL-codes: C13 C14 C32 (search for similar items in EconPapers)
Date: 2015-02-20
New Economics Papers: this item is included in nep-upt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
https://www.ifs.org.uk/uploads/cemmap/wps/cwp071515.pdf (application/pdf)
Our link check indicates that this URL is bad, the error code is: 404 Not Found (https://www.ifs.org.uk/uploads/cemmap/wps/cwp071515.pdf [302 Found]--> https://ifs.org.uk/uploads/cemmap/wps/cwp071515.pdf)

Related works:
Journal Article: Semiparametric dynamic portfolio choice with multiple conditioning variables (2016)
Working Paper: Semiparametric dynamic portfolio choice with multiple conditioning variables (2015)
Working Paper: Semiparametric Dynamic Portfolio Choice with Multiple Conditioning Variables (2015)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ifs:cemmap:07/15

Ordering information: This working paper can be ordered from
The Institute for Fiscal Studies 7 Ridgmount Street LONDON WC1E 7AE

Access Statistics for this paper

More papers in CeMMAP working papers from Centre for Microdata Methods and Practice, Institute for Fiscal Studies The Institute for Fiscal Studies 7 Ridgmount Street LONDON WC1E 7AE. Contact information at EDIRC.
Bibliographic data for series maintained by Emma Hyman ().