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

In English

Författare

  • Bjorn Hagstroemer
  • Richard G. Anderson
  • Jane M. Binner
  • Thomas Elger
  • Birger Nilsson

Summary, in English

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.

Publiceringsår

2008

Språk

Engelska

Sidor

134-156

Publikation/Tidskrift/Serie

Manchester School

Volym

76

Issue

s1

Dokumenttyp

Artikel i tidskrift

Förlag

Wiley-Blackwell

Ämne

  • Economics

Status

Published

ISBN/ISSN/Övrigt

  • ISSN: 1463-6786