Related papers: Market Efficiency and Growth Optimal Portfolio
Portfolio optimization methods suffer from a catalogue of known problems, mainly due to the facts that pair correlations of asset returns are unstable, and that extremal risk measures such as maximum drawdown are difficult to predict due to…
We investigate how and when to diversify capital over assets, i.e., the portfolio selection problem, from a signal processing perspective. To this end, we first construct portfolios that achieve the optimal expected growth in i.i.d.…
A market portfolio is a portfolio in which each asset is held at a weight proportional to its market value. Functionally generated portfolios are portfolios for which the logarithmic return relative to the market portfolio can be decomposed…
The deviation of the efficient market hypothesis (EMH) for the practical economic system allows us gain the arbitrary or risk premium in finance markets. We propose the triplet $(R,H,\sigma)$ theory to give the local and global optimal…
Equity premium, the surplus returns of stocks over bonds, has been an enduring puzzle. While numerous prior works approach the problem assuming the utility of money is invariant across contexts, our approach implies that in efficient…
We consider a multi-stock continuous time incomplete market model with random coefficients. We study the investment problem in the class of strategies which do not use direct observations of the appreciation rates of the stocks, but rather…
The high sensitivity of optimized portfolios to estimation errors has prevented their practical application. To mitigate this sensitivity, we propose a new portfolio model called a Deeply Equal-Weighted Subset Portfolio (DEWSP). DEWSP is a…
We derive new results related to the portfolio choice problem for power and logarithmic utilities. Assuming that the portfolio returns follow an approximate log-normal distribution, the closed-form expressions of the optimal portfolio…
It has been assumed that arbitrage profits are not possible in efficient markets, because future prices are not predictable. Here we show that predictability alone is not a sufficient measure of market efficiency. We instead propose to…
This paper considers a portfolio trading strategy formulated by algorithms in the field of machine learning. The profitability of the strategy is measured by the algorithm's capability to consistently and accurately identify stock indices…
This paper develops a structural framework for characterizing the informational feasibility of financial markets under heterogeneous institutional and geopolitical conditions. Departing from the assumption of uniform and time-invariant…
Solving large-scale robust portfolio optimization problems is challenging due to the high computational demands associated with an increasing number of assets, the amount of data considered, and market uncertainty. To address this issue, we…
We consider a single-period portfolio selection problem for an investor, maximizing the expected ratio of the portfolio utility and the utility of a best asset taken in hindsight. The decision rules are based on the history of stock returns…
We construct the maximally predictable portfolio (MPP) of stocks using machine learning. Solving for the optimal constrained weights in the multi-asset MPP gives portfolios with a high monthly coefficient of determination, given the sample…
In this paper, we consider the portfolio optimization problem in a financial market under a general utility function. Empirical results suggest that if a significant market fluctuation occurs, invested wealth tends to have a notable change…
In the context of stochastic portfolio theory we introduce a novel class of portfolios which we call linear path-functional portfolios. These are portfolios which are determined by certain transformations of linear functions of a…
Obtaining utility maximizing optimal portfolios in closed form is a challenging issue when the return vector follows a more general distribution than the normal one. In this note, we give closed form expressions, in markets based on…
Consider an equity market with $n$ stocks. The vector of proportions of the total market capitalizations that belong to each stock is called the market weight. The market weight defines the market portfolio which is a buy-and-hold portfolio…
In this paper we derive the exact solution of the multi-period portfolio choice problem for an exponential utility function under return predictability. It is assumed that the asset returns depend on predictable variables and that the joint…
We consider the problem of choosing an optimal portfolio, assuming the asset returns have a Gaussian mixture (GM) distribution, with the objective of maximizing expected exponential utility. In this paper we show that this problem is…