Performance evaluation of dynamic trading strategies in UK stock returns incorporating lagged conditioning information

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Abstract

This paper evaluates the performance of the optimal mean-variance portfolio decision when lagged conditioning information is included in the investment universe. Motivated by the dynamic trading literature we evaluate the performance of eight conditioned information portfolios against an unconditional portfolio and various benchmark strategies. We find with that including lagged conditioning information into the optimal mean-variance portfolio decision can add economic wealth. A number of the conditioning information variables used are significantly effective at improving the portfolio performance in terms of the Sharpe (1966) ratio, Certainty Equivalent Return, and Jensen (1968) performance. We find that the lagged market excess returns instrument has the greatest impact on the portfolio decision.
Original languageEnglish
Pages (from-to)67-82
Number of pages16
JournalEuropean Journal of Finance
Volume17
Issue number1
Early online date19 Apr 2010
DOIs
Publication statusPublished - 2011

Keywords

  • mean-variance analysis
  • dynamic trading strategies

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