Joint research unit 7235

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

Sessi Tokpavi

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.

AGENDA

Tuesday 7 February 2023

Recherche et Economie et Socioéconomie Politique, des Institutions et des Régulations (RESPIR)

Tristan Velardo (Sciences Po Bordeaux, Centre Emile Durkheim)

Report à une date ultérieure qui sera communiquée dès que possible

From the primitive mentality to the civilization of capitalism: Schumpeter, reader of Lévy-Bruh

Tuesday 7 February 2023

From the primitive mentality to the civilization of capitalism: Schumpeter, reader of Lévy-Bruh

Tristan Velardo (Sciences Po Bordeaux, Centre Emile Durkheim)

Report à une date ultérieure qui sera communiquée dès que possible

From the primitive mentality to the civilization of capitalism: Schumpeter, reader of Lévy-Bruh

Tuesday 7 February 2023

Flood Risk Information: Evidence from Paris Housing Markets

Emmanuelle Lavaine (CEE-M - University of Montpellier)

Flood Risk Information: Evidence from Paris Housing Markets

Tuesday 7 February 2023

Développement Durable Environnement et Energie (DDEE)

Emmanuelle Lavaine (CEE-M - University of Montpellier)

Flood Risk Information: Evidence from Paris Housing Markets

Thursday 9 February 2023

Gender, competitiveness, and reaction to defeat

Claire Mollier

Gender, competitiveness, and reaction to defeat

Thursday 9 February 2023

Doctorants

Claire Mollier

Gender, competitiveness, and reaction to defeat

Friday 10 February 2023

Colloques et Workshops

Digital Economics Workshop

Friday 10 February 2023

Colloques et Workshops

Digital Economics Workshop

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