On the base of which returns do I have to derive optimal portfolio weights of an investment strategy? More specifically, do I have to use the excess returns or just the normal returns of the respective assets? I'd appreciate any help!
Unless you have a specific benchmark that you have to outperform, I would simply use the raw returns of the portfolio as opposed to any sort of excess returns over a benchmark. In the end, you will likely to be backtesting your whole strategy, portfolio selection and rebalancing included and you'd presumably be looking into metrics such as Sharp ratios, maximal drawdown, kurtosis, etc. It just seems like using only raw returns saves you a lot of trouble in that context.