Expected Returns Independent Allocations

Abstract

Present market instabilities have prompted great interest on the characteristics of specific portfolios such as minimum variance and equally- weighted risk contribution portfolios as these portfolios do not rely on the estimate of expected returns. Indeed, in turmoil periods traditional market co occurrences and market dependencies, underlying qualitative analysts' expectations on market directionality, are perturbed. As a consequence it is extremely difficult to rely on past average returns or to formulate future return expectations as required to construct efficient portfolios in a traditional portfolio optimization problem.Our objective here is to foster educated intuition by determining a set of simple rules characterising portfolios based on Expected Return Independent Allocations (E.R.I.A. in the sequel). The general case of portfolio optimization embedding qualitative views has been addressed in a dedicated note