Reference

Sylvain Chassang (Princeton University), “Mostly Prior-Free Asset Allocation”, Paul Woolley Research Initiative Seminar, IDEI, December 5, 2016, 12:30–14:00, room MF 323.

Abstract

This paper develops a prior-free version of Markowitz (1952)'s efficient portfolio theory that allows the decision maker to express preferences over risk and reward, even though she is unable to express a prior over potentially non-stationary returns. The corresponding optimal allocation strategies are admissible, interior, and exhibit a form of momentum. Empirically, prior-free efficient allocation strategies successfully exploit time-varying risk premium present in historical returns.

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