Seminar

Mostly Prior-Free Asset Allocation

Sylvain Chassang (Princeton University)

December 5, 2016, 12:30–14:00

Room MF 323

Paul Woolley Research Initiative Seminar

Abstract

This paper develops a prior-free version of Markowitz (1952)'s efficient portfolio theory that allows the decision maker to express preferences over risk and reward, even though she is unable to express a prior over potentially non-stationary returns. The corresponding optimal allocation strategies are admissible, interior, and exhibit a form of momentum. Empirically, prior-free efficient allocation strategies successfully exploit time-varying risk premium present in historical returns.