The dual approach to portfolio evaluation: a comparison of the static, myopic and generalized buy-and-hold strategies
We use the recently proposed duality approach to study the performance of static, myopic and generalized buy-and-hold (GBH) trading strategies. Our interest in static and GBH strategies is motivated by the fact that these strategies are intuitive and straightforward to implement in practice. The myopic strategy, while more difficult to implement, is often close to optimal and so we use it to obtain tight bounds on the performance of the true optimal dynamic trading strategy. We find that while this optimal dynamic strategy often significantly outperforms the GBH strategy, this is not true in general when no-borrowing or no-short-sales constraints are imposed on the investor. This has implications for investors when a dynamic trading strategy is too costly or difficult to implement in practice. For the class of security price dynamics under consideration, we also show that the optimal GBH strategy is always superior to the optimal static strategy. We also demonstrate that the dual approach is even more tractable than originally considered. In particular, we show it is often possible to solve for the theoretically satisfying upper bounds on the optimal value function that were suggested when the dual approach was originally proposed.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Volume (Year): 11 (2011)
Issue (Month): 1 ()
|Contact details of provider:|| Web page: http://www.tandfonline.com/RQUF20|
|Order Information:||Web: http://www.tandfonline.com/pricing/journal/RQUF20|
When requesting a correction, please mention this item's handle: RePEc:taf:quantf:v:11:y:2011:i:1:p:81-99. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Michael McNulty)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.