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Robo-advisor using closed-form solutions for investors’ risk preferences

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  • Zhi-Long Dong
  • Min-Xing Zhu
  • Feng-Min Xu

Abstract

In this article, we design a robo-advisor which has a bi-level framework. The framework enables it to handle a large amount of assets using fast algorithms in the lower level. The proposed robo-advisor can utilize the closed-form solutions for investors’ risk preferences based on corresponding portfolio choices. A dynamic weight is applied to update investors’ risk preferences. Numerical results based on real data in Chinese stock market show that our proposed robo-advisor can accurately estimate the risk preferences of investors and outperform the benchmark formed by market indexes.

Suggested Citation

  • Zhi-Long Dong & Min-Xing Zhu & Feng-Min Xu, 2022. "Robo-advisor using closed-form solutions for investors’ risk preferences," Applied Economics Letters, Taylor & Francis Journals, vol. 29(16), pages 1470-1477, September.
    • Handle: RePEc:taf:apeclt:v:29:y:2022:i:16:p:1470-1477
    DOI: 10.1080/13504851.2021.1937495
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    Cited by:

    1. Cardillo, Giovanni & Chiappini, Helen, 2024. "Robo-advisors: A systematic literature review," Finance Research Letters, Elsevier, vol. 62(PA).

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