Characteristics of robust portfolios in a varied asset universe

Abstract

In this paper, we find that the robust portfolios constructed from worst-case approaches systematically bet more on the factors in an asset universe composed of equities, fixed incomes, and commodities. This generalizes the findings that the robust equity portfolios are more tilted towards Fama–French factors than mean–variance portfolios. In addition, we show that the factor exposures of robust portfolios can be controlled by adding linear constraints to the original robust problems but the revised approach comes at the cost of decrease in robustness.