Abstract: We employ monthly and daily returns of US stocks to evaluate the out-of-sample performance of investment rules stemming from the mean-variance, Kelly and universal portfolio literature. We find that none of the strategies considered is significantly better or worse than all the others. Moreover, strategies rankings in terms of Sharpe ratio, Sortino ratio, Rachev ratio and Final Wealth is highly correlated, meaning that investors’ goal should not influence the choice of the optimal portfolio rule. Conversely, agents should take into account the properties (return, risk and correlation) of the set of stocks selected for investment when they are choosing the portfolio model to follow. Specifically, on the one hand if stocks are highly heterogeneous in terms of return and they have a low risk profile, the Kelly investor will get richer. On the other hand, if stocks have similar returns the minimum variance and the universal portfolio will increase performance. Finally, portfolio characteristics do not influence the performance of the mean-variance rule. Joint with Giulio Bottazzi.
Discussant is Xiao Xiao (Erasmus University Amsterdam)
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