Automated Advice: A Portfolio Management Perspective on Robo-Advisors
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In this paper we investigate the predominant robo-advisor model, uncovering that however novel this solution might be, it also relies religiously on imperative contributions to modern portfolio theory that have been made in the past half a century. Despite conforming by and large to passive investment, we find that the slight variations in the methodologies used by robo-advisors introduce significant variability in risk-adjusted returns across the robo-advisor spectrum. Nonetheless, our performance estimations show that three out of the four robo-advisors considered in this paper produce higher risk-adjusted return than the benchmark. In testing the robo-advisor model on the Norwegian market, we also find that a robo-advisor strategy based on a multifactor approach, outperforms the benchmark for the investment horizons considered.