Mean-variance optimization using forward-looking return estimates View Full Text


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Article Info

DATE

2019-04

AUTHORS

Patrick Bielstein, Matthias X. Hanauer

ABSTRACT

Despite its theoretical appeal, Markowitz mean-variance portfolio optimization is plagued by practical issues. It is especially difficult to obtain reliable estimates of a stock’s expected return. Recent research has therefore focused on minimum volatility portfolio optimization, which implicitly assumes that expected returns for all assets are equal. We argue that investors are better off using the implied cost of capital based on analysts’ earnings forecasts as a forward-looking return estimate. Correcting for predictable analyst forecast errors, we demonstrate that mean-variance optimized portfolios based on these estimates outperform on both an absolute and a risk-adjusted basis the minimum volatility portfolio as well as naive benchmarks, such as the value-weighted and equally-weighted market portfolio. The results continue to hold when extending the sample to international markets, using different methods for estimating the forward-looking return, including transaction costs, and using different optimization constraints. More... »

PAGES

815-840

Identifiers

URI

http://scigraph.springernature.com/pub.10.1007/s11156-018-0727-4

DOI

http://dx.doi.org/10.1007/s11156-018-0727-4

DIMENSIONS

https://app.dimensions.ai/details/publication/pub.1104123637


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Download the RDF metadata as:  json-ld nt turtle xml License info

HOW TO GET THIS DATA PROGRAMMATICALLY:

JSON-LD is a popular format for linked data which is fully compatible with JSON.

curl -H 'Accept: application/ld+json' 'https://scigraph.springernature.com/pub.10.1007/s11156-018-0727-4'

N-Triples is a line-based linked data format ideal for batch operations.

curl -H 'Accept: application/n-triples' 'https://scigraph.springernature.com/pub.10.1007/s11156-018-0727-4'

Turtle is a human-readable linked data format.

curl -H 'Accept: text/turtle' 'https://scigraph.springernature.com/pub.10.1007/s11156-018-0727-4'

RDF/XML is a standard XML format for linked data.

curl -H 'Accept: application/rdf+xml' 'https://scigraph.springernature.com/pub.10.1007/s11156-018-0727-4'


 

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