Department of Banking and Financial Management University of Piraeus
Academic Seminar Series
Thursday, May 29^th, 2025 / Time: 16:15 – 17:30, Online

Calm Your Portfolio: The Importance of Disciplining Intelligent but Fickle Forecasts in Portfolio Optimization

Konark Saxena

ESCP Business School

Abstract

We study portfolio optimization for the top 500 U.S. stocks using their characteristic information. To outperform value-weighted portfolios while accounting for transaction costs and managing risk, we find it essential to efficiently utilize characteristic information to predict expected returns while stabilizing both portfolio weight changes and expected volatility. We propose and test a portfolio optimization framework that incorporates turnover penalties, alternative optimized portfolios to the tangency portfolio, and volatility caps. Portfolios based on our framework yield more stable weights and consistently outperform value-weighted portfolios across various metrics. These results remain robust across different covariance and mean estimators, including advanced machine learning and artificial intelligence approaches.

Konark Saxena is an Associate Professor at ESCP Business School and the Director of the ESCP Center for Finance. Konark’s research focuses on various aspects of investing, including portfolio choice, asset pricing, sustainable finance, and the asset management industry. His work has been published in top-tier finance journals such as The Review of Financial Studies, Journal of Financial Economics, and Journal of Financial and Quantitative Analysis. In addition, Konark conducts interdisciplinary research on climate change and finance. His contributions in this area have been published in Nature Communications.

This seminar will be online on Teams. Click here to attend