Strategies for choosing an uncertainty budget in log-robust portfolio management

Document Type

Article

Department or Administrative Unit

Finance and Supply Chain Management

Publication Date

7-25-2019

Abstract

This paper proposes six strategies for deciding upon “budget of uncertainty” parameters as input to a sequence of robust (portfolio) optimization problems over time, the solutions of which are a sequence of portfolios (i.e., a portfolio trajectory). Using 10 French Library datasets,1 the performance of the portfolio trajectories resulting from these strategies are compared with one another and the 1/n strategy. Before accounting for trading costs, all strategies result in portfolio trajectories that produce higher profit than the 1/n strategy. Even after accounting for trading costs (of 1% of trading volume), two of the strategies result in portfolio trajectories that have higher profit and lower risk compared to the 1/n strategy. Furthermore, we find that equal-weighted indices are better assets to manage than value-weighted indices in terms of achieving larger returns and lower risks.

Comments

This article was originally published in International Journal of Financial Engineering. The full-text article from the publisher can be found here.

Due to copyright restrictions, this article is not available for free download from ScholarWorks @ CWU.

Journal

International Journal of Financial Engineering

Link to Full Text

Share

COinS