Model scan and optimal portfolio choice in European stock returns

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Fletcher, Jonathan and Marshall, Andrew and O'Connell, Michael (2025) Model scan and optimal portfolio choice in European stock returns. European Journal of Finance. pp. 1-18. ISSN 1351-847X (https://doi.org/10.1080/1351847X.2025.2502571)

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Abstract

This study examines the performance benefits of using the best linear factor models from the Bayesian model scan of Chib, Zhao, and Zhou [2024. “Winners from Winners: A Tale of Risk Factors.” Management Science 70:396–414] in optimal mean-variance European regional factor strategies. The study finds that using the best models from the model scan delivers significant out-of-sample performance benefits relative to two benchmark models. Our study also finds that strategies that use the best models from the model scan also perform well relative to strategies based on traditional factor models.

ORCID iDs

Fletcher, Jonathan ORCID logoORCID: https://orcid.org/0000-0003-0568-9145, Marshall, Andrew ORCID logoORCID: https://orcid.org/0000-0001-7081-1296 and O'Connell, Michael;
CORE (COnnecting REpositories)