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Total Posts: 70
Joined: Apr 2014
Posted: 2017-11-13 00:45
I was reading through He, Litterman. The intuition behind Black-Litterman (PDF) the other day, and just saw that there's an active Kelly Sizing thread in which Markowitz mean variance is discussed.

As a non-industry type, I have no idea what's actually going on. I'm curious what the current state of best practice in terms of portfolio optimisation is, particularly with respect to beta neutral portfolios.


Total Posts: 169
Joined: Feb 2011
Posted: 2017-12-11 22:56
The best practice is ... common sense!

Well, from theoretical point of view Kelly criterion is the most consistent approach.
I scrutinized it in this paper:

However, Kelly also is very sensitive to the parameter estimation errors (that are inevitable by limited sample of historical market data and ever-changing markets).
This its application is also pretty hard, also possible.
But first of all it is to consider as theoretical limit of which performance one can[not] achieve in long-term. - Knowledge rather than Hope: A Book for Retail Investors and Mathematical Finance Students


Total Posts: 10
Joined: Jul 2020
Posted: 2020-07-20 22:04
Would love to hear more from others on this. From everything I've seen, Markowitz style approaches seem to be quite hard to get right in-production / out-of-sample. Hard to beat a simple inverse variance portfolio-weighting.


Total Posts: 13
Joined: Oct 2020
Posted: 2020-10-02 11:33
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