The Bootstrap Efficient Frontier for Mixed-Asset Portfolios

How much in real estate? To answer this question, uncertainty needs to be introduced into the efficient frontier, so that a confidence interval can be estimated for the real estate weight in a mixed-asset portfolio. Instead of focusing on a single optimal portfolio, this study examines the entire efficient frontier using the traditional point estimate method and the bootstrap simulation. The bootstrap distributions of the estimated weight vectors indicate that their confidence intervals are large enough to render them effectively useless. Once uncertainty is introduced, the efficient frontier becomes fuzzy and the weight vectors become even fuzzier. Copyright American Real Estate and Urban Economics Association.