Tid: 4 mars 2019 kl 15.15-16.00.

Föredragshållare: Nazim Huseynov

Titel: Maximum Predictability Portfolio optimization (Master thesis)

Abstract Harry Markowitz work in the 50’s spring-boarded modern portfolio theory. It gives investors quantitative tools to compose and assess asset portfolios in a systematic fashion. The main idea of the Mean-Variance framework is that composing an optimal portfolio is equivalent to solving a quadratic optimization problem. In this project we employ the Maximally Predictable Portfolio (MPP) framework proposed by Lo and MacKinlay, as an alternative to Markowitz’s approach, in order to construct investment portfolios. One of the benefits of using the former method is that it accounts for forecasting estimation errors. Our investment strategy is to buy and hold these portfolios during a time period and assess their performance. We show that it is indeed possible to construct portfolios with high rate of return and coefficient of determination based on historical data. However, despite their many promising features, the success of MPP portfolios is short lived. Based on our assessment we conclude that investing in the stock market solely on the basis of the opti- mization results is not a lucrative strategy.

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