Parametric portfolio policies
Subtitle: exploiting characteristics in the cross section of equity returns
By: Michael W. Brandt, Pedro Santa-Clara, Rossen Valkanov.
Contributors: Santa-Clara, Pedro.; Valkanov, Rossen I. 1973-; National Bureau of Economic Research.
Series: NBER working paper series ;; working paper 10996; Working paper series (National Bureau of Economic Research : Online) ;; working paper no. 10996.
Publisher: National Bureau of Economic Research
Published: 2004
Place of publication: Cambridge, MA
Language: eng
Format: Electronic resource
Subjects: Portfolio management -- Mathematical models.
Description: "We propose a novel approach to optimizing portfolios with large numbers of assets.  We model directly the portfolio weight in each asset as a function of the asset's characteristics.  The coefficients of this function are found by optimizing the investor's average utility of the portfolio's return over the sample period.  Our approach is computationally simple, easily modified and extended, produces sensible portfolio weights, and offers robust performance in and out of sample.  In contrast, the traditional approach of first modeling the joint distribution of returns and then solving for the corresponding optimal portfolio weights is not only difficult to implement for a large number of assets but also yields notoriously noisy and unstable results.  Our approach also provides a new test of the portfolio choice implications of equilibrium asset pricing models.  We present an empirical implementation for the universe of all stocks in the CRSP-Compustat dataset, exploiting the size, value, and momentum anomalies"--National Bureau of Economic Research web site.
Notes: Includes bibliographical references.
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