Parametric Portfolio Policies: Exploiting Characteristics in the Cross-Section of Equity Returns

• 成果类型: Article
• 署名作者: Brandt, Michael W.; Santa-Clara, Pedro; Valkanov, Rossen
• 署名单位: Duke University; National Bureau of Economic Research; University of California System; University of California Los Angeles; Universidade Nova de Lisboa; University of California System; University of California San Diego
• 刊物名称: REVIEW OF FINANCIAL STUDIES
• ISSN/ISSBN: 0893-9454
• DOI: 10.1093/rfs/hhp003
• 发表日期: 2009
• 页码: 3411
• 关键词: EXPECTED RETURNS; stock returns; selection; INVESTMENT; RISK; CHOICE; MODEL; performance

摘要

We propose a novel approach to optimizing portfolios with large numbers of assets. We model directly the portfolio weight in each asset as a function of the asset's characteristics. The coefficients of this function are found by optimizing the investor's average utility of the portfolio's return over the sample period. Our approach is computationally simple and easily modified and extended to capture the effect of transaction costs, for example, produces sensible portfolio weights, and offers robust performance in and out of sample. In contrast, the traditional approach of first modeling the joint distribution of returns and then solving for the corresponding optimal portfolio weights is not only difficult to implement for a large number of assets but also yields notoriously noisy and unstable results. We present an empirical implementation for the universe of all stocks in the CRSP-Compustat data set, exploiting the size, value, and momentum anomalies.