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Title:Markowitz versus Michaud: Portfolio optimization strategies reconsidered PDF Logo
Authors:Becker, Franziska
Gürtler, Marc
Hibbeln, Martin
Issue Date:2009
Series/Report no.:Working papers // Institut für Finanzwirtschaft, Technische Universität Braunschweig IF30V3
Abstract:Several attempts have been made to reduce the impact of estimation errors on the optimal portfolio composition. On the one hand, improved estimators of the necessary moments have been developed and on the other hand, heuristic methods have been generated to enhance the portfolio performance, for instance the resampled efficiency of Michaud (1998). We compare the out-ofsample performance of traditional Mean-Variance optimization by Markowitz (1952) with Michaud's resampled efficiency in a comprehensive simulation study for a large number of relevant estimators appearing in the literature. In this context we consider different estimation periods as well as unconstrained and constrained portfolio optimization problems. The main finding of our simu-lation study concerning the optimization approach is that Markowitz outperforms Michaud on average. Furthermore, the estimation strategy of Frost/Savarino (1988) proves to work excellent in all analyzed situations.
Subjects:portfolio selection
estimators of moments
simulation study
mean-variance optimization
resampled efficiency
JEL:G11
C15
Document Type:Working Paper
Appears in Collections:Working Paper Series, Institut für Finanzwirtschaft, TU Braunschweig

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