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Challenging the robustness of optimal portfolio investment with moving average-based strategies

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  • Ahmed Bel Hadj Ayed
  • Grégoire Loeper
  • Frédéric Abergel

Abstract

The aim of this paper is to compare the performance of a theoretically optimal portfolio with that of a moving average-based strategy in the presence of parameter misspecification. The setting we consider is that of a stochastic asset price model where the trend follows an unobservable Ornstein–Uhlenbeck process. For both strategies, we provide the asymptotic expectation of the logarithmic return as a function of the model parameters. Then, numerical examples are given, showing that an investment strategy using a moving average crossover rule is more robust than the optimal strategy under parameter misspecification.

Suggested Citation

  • Ahmed Bel Hadj Ayed & Grégoire Loeper & Frédéric Abergel, 2019. "Challenging the robustness of optimal portfolio investment with moving average-based strategies," Quantitative Finance, Taylor & Francis Journals, vol. 19(1), pages 123-135, January.
    • Handle: RePEc:taf:quantf:v:19:y:2019:i:1:p:123-135
    DOI: 10.1080/14697688.2018.1468080
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    Cited by:

    1. YuZhi Chen & Yi Fang & XinYue Li & Jian Wei, 2023. "A factor pricing model based on double moving average strategy," Palgrave Communications, Palgrave Macmillan, vol. 10(1), pages 1-13, December.

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