English

Dynamic Inclusion and Bounded Multi-Factor Tilts for Robust Portfolio Construction

Optimization and Control 2026-01-12 v1 Machine Learning

Abstract

This paper proposes a portfolio construction framework designed to remain robust under estimation error, non-stationarity, and realistic trading constraints. The methodology combines dynamic asset eligibility, deterministic rebalancing, and bounded multi-factor tilts applied to an equal-weight baseline. Asset eligibility is formalized as a state-dependent constraint on portfolio construction, allowing factor exposure to adjust endogenously in response to observable market conditions such as liquidity, volatility, and cross-sectional breadth. Rather than estimating expected returns or covariances, the framework relies on cross-sectional rankings and hard structural bounds to control concentration, turnover, and fragility. The resulting approach is fully algorithmic, transparent, and directly implementable. It provides a robustness-oriented alternative to parametric optimization and unconstrained multi-factor models, particularly suited for long-horizon allocations where stability and operational feasibility are primary objectives.

Keywords

Cite

@article{arxiv.2601.05428,
  title  = {Dynamic Inclusion and Bounded Multi-Factor Tilts for Robust Portfolio Construction},
  author = {Roberto Garrone},
  journal= {arXiv preprint arXiv:2601.05428},
  year   = {2026}
}

Comments

28 pages, 7 figures, algorithmic portfolio construction framework emphasizing robustness, explicit constraints, and implementability

R2 v1 2026-07-01T08:57:10.876Z