I jointly treat two critical issues in the application of mean-variance portfolios, i.e., estimation risk and portfolio instability. I find that theory-based portfolio strategies known to outperform naive diversification (1/N) in the absence of transaction costs, heavily underperform it under...

This paper investigates the uncertainty about the trading costs associated with a given portfolio strategy. I derive accurate approximations of the ex ante probability distributions of proportional trading costs and portfolio turnover under the conventional assumption of normal asset returns....

We compare the performance of popular covariance forecasting models in the context of a portfolio of major European equity indices. We find that models based on high-frequency data offer a clear advantage in terms of statistical accuracy. They also yield more theoretically consistent predictions...

We investigate how to best model skewness for portfolio choice decisions. To this end, we compare the predictive ability and portfolio performance of several prominent skewness models in a sample of ten international equity market indices. Overall, models that employ information from the option...

This paper extends the nonlinear cointegration approach of Granger and Hallman (1991) and Sephton (1994) using the framework of stochastic Lyapunov stability theory. The extended approach is nonparametric and has the advantage of being general enough to accommodate complicated nonlinear...