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Large-Scale Portfolio Allocation Under Transaction Costs and Model Uncertainty: Adaptive Mixing of High- and Low-Frequency Information

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  • Hautsch, Nikolaus
  • Voigt, Stefan

Abstract

We propose a Bayesian sequential learning framework for high-dimensional asset al-locations under model ambiguity and parameter uncertainty. The model is estimated via MCMC methods and allows for a wide range of data sources as inputs. Employing the proposed framework on a large set of NASDAQ-listed stocks, we observe that time-varying mixtures of high- and low-frequency based return predictions significantly improve the out-of-sample portfolio performance.

Suggested Citation

  • Hautsch, Nikolaus & Voigt, Stefan, 2017. "Large-Scale Portfolio Allocation Under Transaction Costs and Model Uncertainty: Adaptive Mixing of High- and Low-Frequency Information," VfS Annual Conference 2017 (Vienna): Alternative Structures for Money and Banking 168222, Verein für Socialpolitik / German Economic Association.
    • Handle: RePEc:zbw:vfsc17:168222
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    References listed on IDEAS

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    More about this item

    JEL classification:

    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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