Statistical Learning for Individualized Asset Allocation

DOI10.1080/01621459.2022.2139265MaRDI QIDQ6154020zbMATH OpenOpenAlexWikidataFDO

Authors Yi Ding, Yingying Li, Rui Song

Publication date 19 March 2024

Published in Journal of the American Statistical Association (Search for Journal in Brave)

Full work available at URL https://arxiv.org/abs/2201.07998

zbMATH Keywords

penalized regressionhigh-dimensional statistical learningindividualizationcontinuous-action decision-making

Mathematics Subject Classification ID

Statistics (62-XX)

Abstract: We establish a high-dimensional statistical learning framework for individualized asset allocation. Our proposed methodology addresses continuous-action decision-making with a large number of characteristics. We develop a discretization approach to model the effect of continuous actions and allow the discretization frequency to be large and diverge with the number of observations. The value function of continuous-action is estimated using penalized regression with our proposed generalized penalties that are imposed on linear transformations of the model coefficients. We show that our proposed Discretization and Regression with generalized fOlded concaVe penalty on Effect discontinuity (DROVE) approach enjoys desirable theoretical properties and allows for statistical inference of the optimal value associated with optimal decision-making. Empirically, the proposed framework is exercised with the Health and Retirement Study data in finding individualized optimal asset allocation. The results show that our individualized optimal strategy improves the population financial well-being.

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