We provide a new portfolio decomposition for agents following dynamically the Mean-Variance criterion. We show that the number of components of a dynamic portfolio strategy can be reduced to 2, one hedging the risk of a discount bond maturing at the investor’s horizon, the other hedging the time variation in pseudo relative risk tolerance. The model is estimated over the period 1963 to 2012 for the US. It yields acceptable results for medium and long term investors endowed with medium or high risk tolerance but problematic ones otherwise. Link to the article
LIOUI, A. and PONCET, P. (2016). Understanding Dynamic Mean Variance Asset Allocation. European Journal of Operational Research, 254(1), pp. 320-337.