Diversification of Time-Varying Tangency Portfolio under Nonlinear Constraints through Semi-Integer Beetle Antennae Search Algorithm

BAS: Beetle Antennae Search Algorithm for Optimization Problems

Meta-heuristic algorithms have become very popular because of powerful performance on the optimization problem. A new algorithm called beetle antennae search algorithm (BAS) is proposed in the paper inspired by the searching behavior of longhorn beetles. The BAS algorithm imitates the function of antennae and the random walking mechanism of beetles in nature, and then two main steps of detectin...

Portfolio Optimization under Time-Varying Economic Regimes

Our paper aims to answer the question: Can the macroeconomic condition be used to better allocate investments among different sectors of a market? Motivated by classical Markowitz portfolio theory, and prior work in attempting to incorporate exogenous economic factors in portfolio optimization [1][2][3][4], we explore three approaches to dynamically rebalance a portfolio as market or economic r...

Illiquidity, Portfolio Constraints, and Diversification *

Optimal Rebalancing of Portfolio Weights under Time-varying Return Volatility

This paper considers horizon effects on portfolio weights under time varying and forecastable return volatility. The return volatility is modelled as a GARCH-M, which is general enough to encompass both constant and time varying mean. The analysis confirms earlier results, namely that there are no horizon effects when the stochastic process, that governs asset returns, has constant mean. Howeve...

Information Acquisition and Portfolio Under-Diversification

We develop a rational model of investors who choose which asset payoffs to acquire information about, before forming portfolios. Scale economies in information acquisition lead investors to specialize in learning about a set of highly-correlated assets. Knowing more about these assets makes them less risky and more desirable to hold. Benefits to specialization compete with benefits to diversifi...