parameter uncertainty

We empirically proof that investors shy away from assets with recent structural breaks which we use as a proxy for parameter uncertainty.

In this paper, we develop a novel, intuitive and objective measure of time-varying parameter uncertainty (PU) based on a simple statistical test.

Ranking assets based on their expected returns and subsequently optimizing portfolios on the reduced amount of information produces pobetter forecasts and significantly improved out-of-sample performance related to the plug-in portfolio.