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Positional Portfolio Management

Author

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  • P Gagliardini
  • C Gourieroux
  • M Rubin

Abstract

We study positional portfolio management strategies in which the manager maximizes an expected utility function written on the cross-sectional rank (position) of the portfolio return. The objective function reflects the manager’s goal to be well-ranked among competitors. To implement positional allocation strategies, we specify a nonlinear unobservable factor model for the asset returns which disentangles the dynamics of the cross-sectional distribution and the dynamics of the ranks of the individual assets. Using a large dataset of stocks returns we find that positional strategies outperform standard momentum, reversal and mean-variance allocation strategies, as well as equally weighted portfolio for criteria based on position.

Suggested Citation

  • P Gagliardini & C Gourieroux & M Rubin, 2021. "Positional Portfolio Management," Journal of Financial Econometrics, Oxford University Press, vol. 19(4), pages 650-706.
    • Handle: RePEc:oup:jfinec:v:19:y:2021:i:4:p:650-706.
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    File URL: http://hdl.handle.net/10.1093/jjfinec/nbz022
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    Citations

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    Cited by:

    1. Vecchi, Edoardo & Berra, Gabriele & Albrecht, Steffen & Gagliardini, Patrick & Horenko, Illia, 2023. "Entropic approximate learning for financial decision-making in the small data regime," Research in International Business and Finance, Elsevier, vol. 65(C).

    More about this item

    Keywords

    Positional good; robust portfolio management; rank; fund tournament; factor model; big data; equally weighted portfolio; momentum; reversal; positional risk aversion;
    All these keywords.

    JEL classification:

    • C38 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Classification Methdos; Cluster Analysis; Principal Components; Factor Analysis
    • C55 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Large Data Sets: Modeling and Analysis
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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