Estimation Risk and Optimal Portfolio Choice.

1980 ◽  
Vol 143 (3) ◽  
pp. 376
Author(s):  
John Matatko ◽  
V. S. Bawa ◽  
S. J. Brown ◽  
R. Klein
Keyword(s):  
Portfolio Choice ◽  
Optimal Portfolio ◽  
Estimation Risk

Estimation Risk and Optimal Portfolio Choice.

1981 ◽  
Vol 36 (1) ◽  
pp. 202
Author(s):  
Larry J. Merville ◽  
Vijay S. Bawa ◽  
Stephen J. Brown ◽  
Roger W. Klein
Keyword(s):  
Portfolio Choice ◽  
Optimal Portfolio ◽  
Estimation Risk

Abstract: The Effect of Limited Information and Estimation Risk on Optimal Portfolio Diversification

1977 ◽  
Vol 12 (4) ◽  
pp. 669-669 ◽  
Author(s):  
Roger W. Klein ◽  
Vijay S. Bawa
Keyword(s):  
Portfolio Choice ◽  
Joint Probability ◽  
Optimal Portfolio ◽  
Joint Probability Distribution ◽  
Sufficient Information ◽  
Limited Information ◽  
Multivariate Normal ◽  
Estimation Risk ◽  
Conjugate Priors ◽  
Mean Variance

This paper analyzes the effect of limited information and estimation risk on optimal portfolio choice when the joint probability distribution of security returns is multivariate normal and the underlying parameters (means and variance-covariance matrix) are unknown. We first consider the case of limited, but sufficient information (the number of observations per security exceeds the number of securities or the prior distribution of the underlying parameters is “sufficiently” informative). We show that for a general family of conjugate priors, the admissible set of portfolios, taking estimation risk into account, may be obtained by the traditional mean-variance analysis. As a result of estimation risk the optimal portfolio choice differs from that obtained by traditional analysis.

Optimal Portfolio Choice with Parameter Uncertainty

2007 ◽  
Vol 42 (3) ◽  
pp. 621-656 ◽  
Author(s):  
Raymond Kan ◽  
Guofu Zhou
Keyword(s):  
Portfolio Choice ◽  
Parameter Uncertainty ◽  
Minimum Variance ◽  
Optimal Portfolio ◽  
Estimation Risk ◽  
Out Of Sample ◽  
Minimum Variance Portfolio ◽  
Riskless Asset ◽  
Fund Portfolio ◽  
Global Minimum Variance Portfolio

AbstractIn this paper, we analytically derive the expected loss function associated with using sample means and the covariance matrix of returns to estimate the optimal portfolio. Our analytical results show that the standard plug-in approach that replaces the population parameters by their sample estimates can lead to very poor out-of-sample performance. We further show that with parameter uncertainty, holding the sample tangency portfolio and the riskless asset is never optimal. An investor can benefit by holding some other risky portfolios that help reduce the estimation risk. In particular, we show that a portfolio that optimally combines the riskless asset, the sample tangency portfolio, and the sample global minimum-variance portfolio dominates a portfolio with just the riskless asset and the sample tangency portfolio, suggesting that the presence of estimation risk completely alters the theoretical recommendation of a two-fund portfolio.

Optimal Portfolio Choice with Estimation Risk: No Risk-Free Asset Case

2021 ◽  
Author(s):  
Raymond Kan ◽  
Xiaolu Wang ◽  
Guofu Zhou
Keyword(s):  
Portfolio Choice ◽  
Exact Distribution ◽  
Optimal Portfolio ◽  
Portfolio Construction ◽  
Estimation Risk ◽  
Choice Problem ◽  
Out Of Sample ◽  
Mean Variance Portfolio ◽  
Mean Variance ◽  
Explicit Expressions

We propose an optimal combining strategy to mitigate estimation risk for the popular mean-variance portfolio choice problem in the case without a risk-free asset. We find that our strategy performs well in general, and it can be applied to known estimated rules and the resulting new rules outperform the original ones. We further obtain the exact distribution of the out-of-sample returns and explicit expressions of the expected out-of-sample utilities of the combining strategy, providing not only a fast and accurate way of evaluating the performance, but also analytical insights into the portfolio construction. This paper was accepted by Tyler Shumway, finance.

Abstract--The Effect of Estimation Risk on Optimal Portfolio Choice Under Uncertainty

1975 ◽  
Vol 10 (4) ◽  
pp. 559 ◽  
Author(s):  
Roger W. Klein ◽  
Vijay S. Bawa
Keyword(s):  
Portfolio Choice ◽  
Optimal Portfolio ◽  
Estimation Risk ◽  
Choice Under Uncertainty

The effect of estimation risk on optimal portfolio choice

1976 ◽  
Vol 3 (3) ◽  
pp. 215-231 ◽  
Author(s):  
Roger W. Klein ◽  
Vijay S. Bawa
Keyword(s):  
Portfolio Choice ◽  
Optimal Portfolio ◽  
Estimation Risk

Optimal Portfolio Choice in Real Terms: Measuring the Benefits of TIPS

2011 ◽  
Author(s):  
Álvaro Cartea ◽  
Jonatan Saúl ◽  
Juan Toro
Keyword(s):  
Portfolio Choice ◽  
Optimal Portfolio
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