We develop a robust mean-to-CVaR portfolio optimization model under interval ambiguity in returns means and covariance. The robust model satisfies second-order stochastic dominance consistency and is formulated as a semi-definite cone program. We use two controlled experiments to document the sensitivity of the optimal allocations to the ambiguity when asset correlation varies, and to the ambiguity intervals. We find that means ambiguity has a higher impact than covariance ambiguity. We apply the model to US equities data to corroborate works showing that ambiguity in mean returns induces a home bias; it can explain the puzzle in a two-country setting but not with three countries. We further establish that covariance ambiguity also induces bias, but with lower impact that can not explain the puzzle. Our results suggest what is needed for the ambiguity channel to provide a full explanation of the puzzle. The findings are robust to alternative model specifications and outliers.
机构:
Natixis, Equ Markets, Paris, France
Univ Paris Diderot, LPMA, Batiment Sophie Germain,Case Courrier 7012, F-75205 Paris 13, FranceNatixis, Equ Markets, Paris, France
Ismail, Amine
Pham, Huyen
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Univ Paris Diderot, LPMA, Batiment Sophie Germain,Case Courrier 7012, F-75205 Paris 13, France
CREST ENSAE, Paris, FranceNatixis, Equ Markets, Paris, France
机构:
Tongji Univ, Dept Comp Sci & Technol, Shanghai 201804, Peoples R ChinaTongji Univ, Dept Comp Sci & Technol, Shanghai 201804, Peoples R China
Liu, Ya
Lai, Jiahao
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Tongji Univ, Dept Comp Sci & Technol, Shanghai 201804, Peoples R ChinaTongji Univ, Dept Comp Sci & Technol, Shanghai 201804, Peoples R China
Lai, Jiahao
Chen, Bo
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SINOPEC Dalian Res Inst Petr & Petrochemicals Co L, Dalian 116045, Peoples R ChinaTongji Univ, Dept Comp Sci & Technol, Shanghai 201804, Peoples R China
Chen, Bo
Wang, Kai
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机构:
Cent South Univ, Sch Automat, Changsha 410083, Peoples R ChinaTongji Univ, Dept Comp Sci & Technol, Shanghai 201804, Peoples R China
Wang, Kai
Qiao, Fei
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Tongji Univ, Dept Comp Sci & Technol, Shanghai 201804, Peoples R ChinaTongji Univ, Dept Comp Sci & Technol, Shanghai 201804, Peoples R China
Qiao, Fei
Wang, Hanli
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机构:
Tongji Univ, Dept Comp Sci & Technol, Shanghai 201804, Peoples R China
Tongji Univ, Minist Educ, Key Lab Embedded Syst & Serv Comp, Shanghai 200092, Peoples R ChinaTongji Univ, Dept Comp Sci & Technol, Shanghai 201804, Peoples R China
机构:
Univ Arizona, Dept Syst & Ind Engn, Tucson, AZ 85721 USAUniv Arizona, Dept Syst & Ind Engn, Tucson, AZ 85721 USA
Cheramin, Meysam
Cheng, Jianqiang
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Univ Arizona, Dept Syst & Ind Engn, Tucson, AZ 85721 USAUniv Arizona, Dept Syst & Ind Engn, Tucson, AZ 85721 USA
Cheng, Jianqiang
Jiang, Ruiwei
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机构:
Univ Michigan, Dept Ind & Operat Engn, Ann Arbor, MI 48109 USAUniv Arizona, Dept Syst & Ind Engn, Tucson, AZ 85721 USA
Jiang, Ruiwei
Pan, Kai
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机构:
Hong Kong Polytech Univ, Fac Business, Dept Logist & Maritime Studies, Hung Hom,Kowloon, Hong Kong, Peoples R ChinaUniv Arizona, Dept Syst & Ind Engn, Tucson, AZ 85721 USA
机构:
Erasmus Univ, Inst Econometr, NL-3062 PA Rotterdam, Netherlands
Technion Israel Inst Technol, Fac Ind Engn & Management, IL-3200003 Haifa, IsraelErasmus Univ, Inst Econometr, NL-3062 PA Rotterdam, Netherlands
Postek, Krzysztof
Ben-Tal, Aharon
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机构:
Technion Israel Inst Technol, Fac Ind Engn & Management, IL-3200003 Haifa, Israel
Shenkar Coll, IL-5252626 Ramat Gan, Israel
Tilburg Univ, NL-5037 AB Tilburg, NetherlandsErasmus Univ, Inst Econometr, NL-3062 PA Rotterdam, Netherlands
Ben-Tal, Aharon
den Hertog, Dick
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机构:
Tilburg Univ, CentER, NL-5037 AB Tilburg, Netherlands
Tilburg Univ, Dept Econometr & Operat Res, NL-5037 AB Tilburg, NetherlandsErasmus Univ, Inst Econometr, NL-3062 PA Rotterdam, Netherlands
den Hertog, Dick
Melenberg, Bertrand
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机构:
Tilburg Univ, CentER, NL-5037 AB Tilburg, Netherlands
Tilburg Univ, Dept Econometr & Operat Res, NL-5037 AB Tilburg, NetherlandsErasmus Univ, Inst Econometr, NL-3062 PA Rotterdam, Netherlands