Faculty of Business Administration


An Empirical Assessment of Characteristics and Optimal Portfolios


Prof. Huacheng ZHANG

Associate Professor of Finance

Institute of Financial Studies of Southwestern University of Finance and Economics




We empirically link measurable characteristics to CRRA investors’ first-order conditions. We mitigate overfitting with a loss function that is more concave than the investor’s utility function. Most of the utility gains derive from complementarities amongst the characteristics. Residual volatility and size complement one-another in-sample, small stocks become more attractive when we can also underweight high residual volatility stocks. Adding momentum to the other characteristics lowers portfolio sampling variance out-of-sample–reducing overfitting. Characteristics allow risk-averse investors to optimally shift portfolio variance outside the span of the traditional factors. As risk aversion increases investors take refuge in the value and market factors–although over 40% of the most risk-averse investor’s optimal portfolio return variance is orthogonal to these factors.

Date:              27 May, 2019 (Monday)

Time:              15:30~17:00

Venue:           E22-2007



Huacheng Zhang is an associate professor of finance at the Institute of Financial Studies of Southwestern University of Finance and Economics in Chengdu, China. He is currently working on topics in empirical asset pricing and institutional investment. His papers have been published in the Journal of Empirical Finance, Pacific-Basin Finance Journal, Review of Financial Economics and other peer-reviewed journals.  He is a member of AEA, AFA, EFA, and FMA. He obtained a bachelor degree in mechanical engineering from Chongqing University and a Ph.D. degree in Finance from the University of Arizona.