Browsing by Author "Slensvik, Jonas Ulfeng"
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- Learning from out-of-sample errors in Norway´s stock marketPublication . Slensvik, Jonas Ulfeng; Barroso, Pedro Monteiro e SilvaThe construction of optimized portfolios usually involves estimating optimization inputs from an historical sample of returns, repeated for every rebalancing frequency. The error between the estimate and what transpired, is disregarded at every iteration. The Galton-algorithm exploits predictability in these errors over time, to generate superior optimization inputs. Originally developed on monthly data for US stocks, I employ the method on monthly, weekly, and daily data for the Norwegian stock market. I find that the strategy produces portfolios that outperform not only other optimal portfolios but also naïve equal- and valueweighting schemes. As more information is fed to the algorithm by increasing the frequency of datapoints, more accurate estimates are made, increasing the Sharpe ratio. These portfolios have the exciting feature of predictable portfolio variance ex-ante, making it possible for portfolio managers to manage risk levels in real-time.