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Mean-variance versus full-scale optimization: Broad evidence for the UK

Författare:
  • Bjorn Hagstroemer
  • Richard G. Anderson
  • Jane M. Binner
  • Thomas Elger
  • Birger Nilsson
Publiceringsår: 2008
Språk: Engelska
Sidor: 134-156
Publikation/Tidskrift/Serie: MANCHESTER SCHOOL
Volym: 76
Nummer: S1
Dokumenttyp: Artikel
Förlag: BLACKWELL PUBLISHING

Sammanfattning

Portfolio choice by full-scale optimization applies the empirical return distribution to a parameterized utility function, and the maximum is found through numerical optimization. Using a portfolio choice setting of three UK equity indices we identify several utility functions featuring loss aversion and prospect theory, under which full-scale optimization is a substantially better approach than the mean-variance approach. As the equity indices have return distributions with small deviations from normality, the findings indicate much broader usefulness of full-scale optimization than has earlier been shown. The results hold in- and out-of-sample, and the performance improvements are given in terms of utility as well as certainty equivalents.

Disputation

Nyckelord

  • Business and Economics

Övriga

Published
Yes
  • ISSN: 1463-6786

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