Should a Skeptical Portfolio Insurer use an Optimal or a Risk-Based Multiplier?

Maxime Bonelli, Daniel Mantilla-Garcia: Following recent evidence of out-of-sample stock market return predictability, the authors aim to evaluate whether the potential benefits suggested by asset allocation theory can actually be captured in the real world using expected return estimates from a predictive system.

Author(s):

Maxime Bonelli, Inria Sophia

Student antipolis

Daniel Mantilla-Garcia

Research Associate, EDHEC-Risk InstituteHead of Research & Development, Koris International

The question is addressed in the context of an investor maximising the long-term growth rate of wealth under a maximum drawdown constraint, and comparing the optimal strategy using the predictive system with a similar risk-based allocation strategy, independent of expected return estimates. The authors find that the risk-based strategy implies nonetheless very variable and relatively high expected returns, and report important potential benefits in using the expected return estimates of the predictive system they used.

Type: Working paper
Date: le 07/07/2014
Research Cluster : Finance

See Also

EDHEC Faculty welcomes Oxford professor Renée B. Adams for a reseach seminar
News
- 11-09-2019
On September 12, 2019, EDHEC faculty will be delighted to welcome Oxford professor...
Riccardo Rebonato will unveil the results of the 12th EDHEC-Risk European ETF & Smart Beta Survey on Sept 23 in London
News
- 03-09-2019
Riccardo Rebonato, Professor of Finance, EDHEC Business School, EDHEC-Risk Institute,...
Launch of the
News
- 03-09-2019
EDHEC Business School and Scientific Beta have announced the launch of the “Advanced...
8 professors appointed in 2019-2020
News
- 27-08-2019
EDHEC Business School appointed 8 new professors for the 2019-2020 academic year. Six...