Optimal Portfolio Choice Under Decision‐Based Model Combinations

• DOI: 10.1002/jae.2502
• Publication Date: 2016-01-19T04:42:47Z
• Authors: Davide Pettenuzzo; Francesco Ravazzolo
• Keywords: Predictability; Stock (firearms)

Summary We propose a density combination approach featuring weights that depend on the past forecast performance of individual models entering through utility‐based objective function. apply this model scheme to stock returns, both at aggregate level and by industry, investigate its forecasting relative host existing methods, within class linear time‐varying coefficients, stochastic volatility models. Overall, we find our produces markedly more accurate predictions than alternatives, in terms statistical economic measures out‐of‐sample predictability. Copyright © 2016 John Wiley & Sons, Ltd.