This paper explores the ex post performance of four widely cited (and sometimes applied) normative portfolio selection models. Each is supposed to solve the same portfolio selection problem relative to the same mean-variance efficiency criteria. It has been shown elsewhere, and this paper confirms, that the models result in vastly different ex ante stock selection strategies. However, the acid test of normative theory is ex post performance relative to a set of efficiency criteria or some other standard. The empirical results reported here show that, with one exception, the ex post performance of the models is consistent with the same mean-variance efficiency criteria, and, over a predictable range of outcomes, consistently outperform the index portfolio based on Standard & Poor's 500 Stock Index.
Review of Quantitative Finance and Accounting – Springer Journals
Published: Sep 30, 2004
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