We overcome the low performance of standard portfolio optimization by modeling portfolio weights as functions of stock characteristics. Instead of predicting asset returns in a first step and subsequently modeling portfolio weights in a second step, we...
Continue readingMarkowitz Portfolio Optimization is haunted by estimation errors in mean and covariance estimates. Instead of optimizing the Sharpe ratio out-of-sample, the optimizers tend to maximize the estimation Error (Michaud 1989). The estimation error maximization property...
Continue readingFactor momentum is persistent and observable in global equity markets (Gupta & Kelly (2019)). We take the perspective of a value investor that faces disappointing returns in domestic markets and attempts to chase positive value returns over the world. A strategy that buys winning international...
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