Portfolio Management and Predictability
Journal Title: Revista Romana de Statistica - Year 2016, Vol 64, Issue 1
Abstract
Future developments of states and states of nature of a system are predictable. Portfolio management needs predictability techniques In order to benefit of opportunities. In theory, predictability has no time dimension. Practically, as opportunity is embedded stochastically, there may appear changes of state that are predictable, as in the correlation between returns and stocks. A certain resource reversion might be possible with regard to returns and stock. The predictability of the optimal portfolio management becomes the objective of any investor who follows a flexible strategy based on optimal exposure to risk. Thus, investors will try to anticipate the possible shocks affecting the opportunity set of their investment. More precisely, they will admit the possibility to hedge any bad news concerning the future opportunity set, the so called “myopia” relative to time horizon when predictability is possible. This circumstance is part of the relative risk aversion. We can affirm that predictability has the same effect as a reduction of risk aversion.
Authors and Affiliations
Gabriela Victoria ANGHELACHE, Vladimir MODRAK, Mădălina Gabriela ANGHEL, Marius POPOVICI
Keywords
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