Dynamic Inclusion and Bounded Multi-Factor Tilts for Robust Portfolio Construction

• URL: http://arxiv.org/abs/2601.05428v1
• Date: Thu, 08 Jan 2026 23:26:58 GMT
• Title: Dynamic Inclusion and Bounded Multi-Factor Tilts for Robust Portfolio Construction
• Abstract summary: This paper proposes a portfolio construction framework designed to remain robust under estimation error, non-stationarity, and realistic trading constraints.<n>The methodology combines dynamic asset eligibility, deterministic rebalancing, and bounded multi-factor tilts applied to an equal-weight baseline.
• Score: 0.0
• License: http://creativecommons.org/licenses/by/4.0/
• Abstract: This paper proposes a portfolio construction framework designed to remain robust under estimation error, non-stationarity, and realistic trading constraints. The methodology combines dynamic asset eligibility, deterministic rebalancing, and bounded multi-factor tilts applied to an equal-weight baseline. Asset eligibility is formalized as a state-dependent constraint on portfolio construction, allowing factor exposure to adjust endogenously in response to observable market conditions such as liquidity, volatility, and cross-sectional breadth. Rather than estimating expected returns or covariances, the framework relies on cross-sectional rankings and hard structural bounds to control concentration, turnover, and fragility. The resulting approach is fully algorithmic, transparent, and directly implementable. It provides a robustness-oriented alternative to parametric optimization and unconstrained multi-factor models, particularly suited for long-horizon allocations where stability and operational feasibility are primary objectives.

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