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. The question is...

The Exchange Traded Fund market is growing, and passive investors need to have reasonable grounds for choosing this investment vehicle as well as robust selection criteria. The author motivates the assertion that a tracker performance must be assessed relative to its benchmark index and not be...

We analyze optimal investment strategies under the drawdown constraint that the wealth process never falls below a fixed fraction of its running maximum. We derive optimal allocation programs by solving numerically the Hamilton-Jacobi-Bellman equation that characterizes the finite horizon...

Big data allows active asset managers to find new trading signals but doing so requires new skills. Thus, it can reduce the ability of asset managers lacking these skills to produce superior returns. Consistent with this possibility, we find that the release of satellite imagery data tracking...

The long-term performance of any portfolio can be decomposed as the sum of the weighted average long-term return of its assets plus the volatility return of the portfolio. Hence, maximizing the volatility return of portfolios of assets with similar characteristics, such as factor portfolios,...

Portfolio insurance strategies that control benchmark-underperformance risk require estimating the maximum multiplier of the risk budget, which determines the allocation to the performance-seeking asset (PSA) at each point in time. We explore the implications of taking into account the expected...

We solve for the growth-rate optimal multiplier of a portfolio insurance strategy in the general case with a locally risky reserve asset and stochastic state variables. The level of the optimal time-varying multiplier turns out to be lower than the standard constant multiplier of CPPI for common...