Mean-Variance versus 1/N: What if we can forecast? (Updated 22nd December 2013)

Mean-variance optimisation has been roundly criticised by financial economists and practitioners alike, leading many to advocate a simple 1/N weighting heuristic. We investigate the performance of the Markowitz technique conditional on investor forecasting ability. Using a novel analytical approach, we demonstrate that investors with a modicum of forecasting ability can employ mean-variance to significantly increase their ex ante utility, outperforming the 1/N rule.

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Year of publication:	2012-10-19
Authors:	Allen, D. ; Lizieri, C. ; Satchell, S.
Institutions:	Faculty of Economics, University of Cambridge
Subject:	Portfolio Choice \| Investment Decisions \| Financial Forecasting and Simulation

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Series:	Cambridge Working Papers in Economics.
Type of publication:	Book / Working Paper
Classification:	G11 - Portfolio Choice ; G17 - Financial Forecasting
Source:	RePEc - Research Papers in Economics

Persistent link: https://ebvufind01.dmz1.zbw.eu/10010740268