Topic: Real-time Portfolio Choice Implications of Asset Pricing Models
Speaker: Francisco Barillas, Emory University
Time: Tuesday, 8 May, 10:00-11:30
Location: Room K02, Guanghua Building 2
There is a plethora of asset pricing factors that have been proposed in the literature. We study the problem of an investor who is confronted with this “zoo of factors” and wishes to find an optimal portfolio. We propose a Bayesian asset allocation framework that accounts for uncertainty about the correct pricing model. This entails an optimal degree of economic shrinkage that is beneficial for portfolio performance. Under a wide range of beliefs about the extent of mispricing, we find that considering all asset pricing models that can be formed from a given set of factors leads to real-time performance that is superior to that of the sample tangency portfolio. The superiority in out-of-sample performance is even stronger when some of the factors are redundant, as might be the case when a factor has been data mined.
Francisco Barillas joined the Goizueta Business School faculty in 2010 after receiving a PhD from New York University. He holds an MSc in Economics from the University of British Columbia in Vancouver, Canada and has worked as an Economist at the Bank of Canada. His current research focuses on portfolio choice, quantifies the impact of belief heterogeneity in asset markets and investigates the impact of macroeconomic fundamentals on the term structure of interest rates.
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