Unité mixte de recherche 7235

Asset Allocation with Aversion to Parameter Uncertainty: A Minimax Regression Approach

Sessi Tokpavi

[en]This paper takes a minimax regression approach to incorporate aversion to parameter uncertainty into the mean-variance model. The uncertainty-averse minimax mean-variance portfolio is obtained by minimizing with respect to the unknown weights the upper bound of the usual quadratic risk function over a fuzzy ellipsoidal set. Beyond the existing approaches, our methodology offers three main advantages: first, the resulting optimal portfolio can be interpreted as a Bayesian mean-variance portfolio with the least favorable prior density, and this result allows for a comprehensive comparison with traditional uncertainty-neutral Bayesian mean-variance portfolios. Second, the minimax mean-variance portfolio has a shrinkage expression, but its performance does not necessarily lie within those of the two reference portfolios. Third, we provide closed form expressions for the standard errors of the minimax mean-variance portfolio weights and statistical significance of the optimal portfolio weights can be easily conducted. Empirical applications show that incorporating aversion to parameter uncertainty leads to more stable optimal portfolios that outperform traditional uncertainty-neutral Bayesian mean-variance portfolios. [/en]

AGENDA

jeudi 8 juin 2023

Doctorants

Sahil Chopra (Université Sorbonne Paris-Nord)

Economics of litigation : Securities class action with third-party funding

lundi 12 juin 2023

Law, Institutions and Economics in Nanterre (LIEN)

Arthur Silve (IAST / Univ. Laval)

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jeudi 15 juin 2023

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Guillaume Pierné

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lundi 19 juin 2023

Law, Institutions and Economics in Nanterre (LIEN)

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mardi 20 juin 2023

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When should non-performance of contracts be excused under changed circumstances?

Henrik Lando (Copenhagen Business School, Denmark)

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When should non-performance of contracts be excused under changed circumstances?

jeudi 22 juin 2023

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Jules Chaperon

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vendredi 1 septembre 2023

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