Challenging the robustness of optimal portfolio investment with moving average-based strategies |
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Authors: | Ahmed Bel Hadj Ayed Grégoire Loeper |
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Institution: | 1. Chair of Quantitative Finance, Laboratory MICS, CentraleSupélec, Université Paris Saclay , Gif sur Yvette, France.;2. BNP Paribas Global Markets , Paris, France.;3. School of Mathematical Sciences, Monash University , Melbourne, Australia. |
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Abstract: | The aim of this paper is to compare the performance of a theoretically optimal portfolio with that of a moving average-based strategy in the presence of parameter misspecification. The setting we consider is that of a stochastic asset price model where the trend follows an unobservable Ornstein–Uhlenbeck process. For both strategies, we provide the asymptotic expectation of the logarithmic return as a function of the model parameters. Then, numerical examples are given, showing that an investment strategy using a moving average crossover rule is more robust than the optimal strategy under parameter misspecification. |
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Keywords: | Optimal strategy Moving average crossovers Robustness Parameter misspecification |
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