Title: Forecasting portfolio weights
Authors: Hugues Langlois - HEC Paris (France) [presenting]
Abstract: A new methodology is proposed to implement unconditionally optimal dynamic mean-variance portfolios. We model portfolio allocations using an auto-regressive process in which the shock to the portfolio allocation is the gradient of the investors' realized certainty equivalent with respect to the allocation. The methodology can accommodate transaction costs, short-selling and leverage constraints, and a large number of assets. In out-of-sample tests using equity portfolios, long-short factors, government bonds, and commodities, we find that its risk-adjusted performance, net of transaction costs, is on average more than double that of other benchmark allocations.