Title: Robust dynamic portfolio choice based on out-of-sample performance
Authors: Rainer Alexander Schuessler - University of Rostock (Germany) [presenting]
Abstract: A new approach is introduced to solve dynamic portfolio choice problems with a focus on robust out-of-sample performance. We therefore devise a strategy that rigorously tackles the problem of estimation error. The method involves defining a discrete set of single-period portfolio allocation policies (candidate portfolio strategies) and choosing among them at portfolio revision dates, relying on bootstrapped pseudo out-of-sample portfolio returns. A key aspect of the approach involves providing candidate portfolio strategies that generate (approximately) iid portfolio returns. We apply the method to dynamic investment problems in futures trading, strategic asset allocation and a cross-sectional momentum strategy in equity markets.