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Markowitz versus Michaud: Portfolio optimization strategies reconsidered

[working paper]

Becker, Franziska; Gürtler, Marc; Hibbeln, Martin

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Please use the following Persistent Identifier (PID) to cite this document:http://hdl.handle.net/10419/55254

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Corporate Editor Technische Universität Braunschweig, Department Wirtschaftswissenschaften, Institut für Finanzwirtschaft
Abstract "Several attempts have been made to reduce the impact of estimation errors on the optimal portfolio composition. On the one hand, improved estimators of the necessary moments have been developed and on the other hand, heuristic methods have been generated to enhance the portfolio performance, for instance the 'resampled efficiency' of Michaud (1998). We compare the out-ofsample performance of traditional Mean-Variance optimization by Markowitz (1952) with Michaud's resampled efficiency in a comprehensive simulation study for a large number of relevant estimators appearing in the literature. In this context we consider different estimation periods as well as unconstrained and constrained portfolio optimization problems. The main finding of our simu-lation study concerning the optimization approach is that Markowitz outperforms Mi-chaud on average. Furthermore, the estimation strategy of Frost/Savarino (1988) proves to work excellent in all analyzed situations." (author's abstract)
Keywords portfolio management; securities; stock exchange; stock market; efficiency; optimization
Classification National Economy
Document language English
Publication Year 2009
City Braunschweig
Page/Pages 37 p.
Series IF Working Paper Series, IF30V3
Licence Deposit Licence - No Redistribution, No Modifications
data provider This metadata entry was indexed by the Special Subject Collection Social Sciences, USB Cologne