Dynamic Trading Strategies and Portfolio Choice

Ravi Bansal, Magnus Dahlquist and Campbell Harvey ()

No 10820, NBER Working Papers from National Bureau of Economic Research, Inc

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.

JEL-codes: G11 G12 (search for similar items in EconPapers)
Date: 2004-10
New Economics Papers: this item is included in nep-fin
Note: AP
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Citations: View citations in EconPapers (12)

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Working Paper: Dynamic Trading Strategies and Portfolio Choice (2004)
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