ESTIMATION AND SELECTION BIAS IN MEAN‐VARIANCE PORTFOLIO SELECTION

ESTIMATION AND SELECTION BIAS IN MEAN‐VARIANCE PORTFOLIO SELECTION Much research has focused on the problem of selecting portfolios without the benefit of parametric measures of risk and return. In this paper, a Monte Carlo technique is used to isolate the extent and nature of the problems introduced by this practice. The technique is employed in the context of classical statistical methodology without permitting short sales. It is shown that using estimators of expected return and risk not only obscures parametric values, but also affects portfolio composition in the Markowitz framework. In this study, these two components of bias are isolated and measured. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png The Journal of Financial Research Wiley

ESTIMATION AND SELECTION BIAS IN MEAN‐VARIANCE PORTFOLIO SELECTION

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Publisher
Wiley Subscription Services, Inc., A Wiley Company
Copyright
© The Southern Finance Association and the Southwestern Finance Association
ISSN
0270-2592
eISSN
1475-6803
D.O.I.
10.1111/j.1475-6803.1989.tb00111.x
Publisher site
See Article on Publisher Site

Abstract

Much research has focused on the problem of selecting portfolios without the benefit of parametric measures of risk and return. In this paper, a Monte Carlo technique is used to isolate the extent and nature of the problems introduced by this practice. The technique is employed in the context of classical statistical methodology without permitting short sales. It is shown that using estimators of expected return and risk not only obscures parametric values, but also affects portfolio composition in the Markowitz framework. In this study, these two components of bias are isolated and measured.

Journal

The Journal of Financial ResearchWiley

Published: Jun 1, 1989

References

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