Time consistent in efficiency dynamic mean–variance policy

The dynamic mean–variance formulation for a market with all risky assets is not time consistent in efficiency (TCIE), in the sense that the pre-committed policy, which is optimal for the entire investment horizon, could become mean–variance inefficient when facing a truncated time-horizon problem at an intermediate time instant. By removing the self-financing restriction and fully avoiding the irrational investment behaviours in intermediate time periods, we develop the TCIE dynamic mean–variance policy, which is TCIE. Comparing to the polices in the literature, such as the strictly dominating policy, the pre-committed policy and the time consistent policy, the TCIE policy can achieve better global investment performance. © Operational Research Society 2022.