The solution to dynamic portfolio choice models can be formulated in terms of a value function by the Bellman principle of optimality, which reduces the multi-period optimal policy choice problem to a sequence of one-period maximization problems. For two adjacent periods, economists compute the...

We study the size and drivers of non-standard errors (Menkveld et al., 2021) in portfolio sorts across 14 common methodological decision nodes and 40 sorting variables. These non-standard errors range between 0.05 and 0.26 percent and are, on average, larger than standard errors. Supposedly...

This research investigates the influence of methodological choices in portfolio sorts on the size of the carbon premium. By analyzing more than 100,000 methodological paths, we find that variations in the construction of brown-minus-green portfolios create substantial non-standard errors. From...

Portfolio optimization often struggles in realistic out-of-sample contexts. We de-constructthis stylized fact, comparing historical forecasts of portfolio optimization inputs withsubsequent out of sample values. We confirm that historical forecasts are imprecise guidesof subsequent values but...

I examine the sample selection bias in portfolio horse race. Numerous studies propose mean-variance portfolio rules to outperform the naive 1/N portfolio rule. However, the outperformance is often justified by a small number of pre-selected datasets. Using a new performance test based on a large...

If realized return is not the ex-post realization of the ex-ante expectation, can we use average realized return to estimate the expected return? In text books, the authors treat realized return as a sample of return. In this paper, we redefine realized return and the ex-post return, and we...

We propose a comprehensive empirical strategy for optimizing the out-of-sample performance of sample mean-variance efficient portfolios. After constructing a sample objective function that accounts for the impact of estimation risk, specification errors, and transaction costs on portfolio...

Performance of mutual fund selection methods is typically assessed using long samples (long time series). It is, however, very often of interest how well the methods perform in shorter samples. We carry out an extensive simulation study based on an empirically motivated skill distribution. For...