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Mostly Prior-Free Asset Allocation

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  • Sylvain Chassang

    (Princeton University)

Abstract

This paper develops a prior-free version of Markowitz (1952)’s efficient portfolio theory that allows the decision maker to express preferences over risk and reward, even though she is unable to express a prior over potentially non-stationary returns. The corresponding optimal allocation strategies are admissible, interior, and exhibit a form of momentum. Empirically, prior-free efficient allocation strategies successfully exploit time-varying risk premium present in historical returns.

Suggested Citation

  • Sylvain Chassang, 2016. "Mostly Prior-Free Asset Allocation," Working Papers 077_2016, Princeton University, Department of Economics, Econometric Research Program..
    • Handle: RePEc:pri:metric:077_2016
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    References listed on IDEAS

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    More about this item

    Keywords

    prior-free portfolios; non-stationary returns; time-varying risk premium; fear-of-missing out; fear-of-loss; regret aversion; drawdown frontier;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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    This paper has been announced in the following NEP Reports:

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