Targets, Predictability, and Performance

• 成果类型: Article
• 署名作者: Penaranda, Francisco; Wu, Liuren
• 署名单位: City University of New York (CUNY) System; Queens College NY (CUNY); City University of New York (CUNY) System; Baruch College (CUNY)
• 刊物名称: MANAGEMENT SCIENCE
• ISSN/ISSBN: 0025-1909
• DOI: 10.1287/mnsc.2020.3904
• 发表日期: 2022
• 页码: 1537-1555
• 关键词: Market timing; return targeting; risk targeting; Sharpe ratio; information ratio

摘要

We study market-timing strategies on a given portfolio to achieve a particular risk or return target. Targeting a constant risk level leads to increasing investment at better investment opportunities, whereas targeting a constant expected return does the opposite. Theoretical and numerical analysis shows that within the usual ranges of investment opportunities, risk targeting generates better unconditional performance than return targeting across a wide range of metrics. Empirical analysis with commonly constructed stock portfolios further highlights the practical infeasibility of return targeting due to the inherently low out-of-sample predicting power. By contrast, risk targeting tends to enhance unconditional stability and performance.