Equally Weighted vs. Long-Run Optimal Portfolios

Forthcoming, European Financial Management

Posted: 28 Feb 2014

See all articles by Giovanna Nicodano

Giovanna Nicodano

University of Turin - Department ESOMAS; Collegio Carlo Alberto; CEPR; EGCI; Netspar

Carolina Fugazza

University of Torino - Department of Economics ESOMAS

Massimo Guidolin

Bocconi University, Dept. of Finance; Bocconi University - CAREFIN - Centre for Applied Research in Finance

Date Written: February 2014

Abstract

Out-of-sample experiments cast doubt on the ability of portfolio optimizing strategies to outperform equally weighted portfolios, when investors have a 1-month time horizon. This paper examines whether this finding holds for longer investment horizons over which the optimizing strategy exploits linear predictability in returns. Our experiments indicate that investors with longer horizons on average would have benefited, ex post, from an optimizing strategy over the period 1995–2009. We analyze performance sensitivity to investor risk aversion, to the number of predictors included in the forecasting model and to the deduction of transaction costs from portfolio performance.

Keywords: asset allocation, return predictability, parameter uncertainty, REITs, portfolio performance

JEL Classification: G11, L85.

Suggested Citation

Nicodano, Giovanna and Fugazza, Carolina and Guidolin, Massimo, Equally Weighted vs. Long-Run Optimal Portfolios (February 2014). Forthcoming, European Financial Management, Available at SSRN: https://ssrn.com/abstract=2400959

Giovanna Nicodano (Contact Author)

University of Turin - Department ESOMAS ( email )

Turin, 10134
Italy

HOME PAGE: http://https://www.carloalberto.org/person/giovanna-nicodano/

Collegio Carlo Alberto ( email )

Piazza Arbarello 8
Torino, Torino 10121
Italy
390116705006 (Phone)

HOME PAGE: http://https://www.carloalberto.org/person/giovanna-nicodano

CEPR ( email )

London
United Kingdom

EGCI ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Netspar ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

Carolina Fugazza

University of Torino - Department of Economics ESOMAS ( email )

Torino
Italy

Massimo Guidolin

Bocconi University, Dept. of Finance ( email )

Via Roentgen, 1
2nd floor
Milan, MI 20136
Italy

Bocconi University - CAREFIN - Centre for Applied Research in Finance

Via Sarfatti 25
Milan, 20136
Italy

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