Portfolio Selection: The Effects of Uncertain Means, Variances, and Covariances

How should individual investors diversify? An empirical evaluation of alternative asset allocation policies

“…The approach is designed to provide reliable findings even when returns exhibit fat tails or 1 The out-of-sample performance of an equally-weighted portfolio as compared to the performance of the standard Markowitz approach is in fact a longstanding and controversial debate in portfolio optimization. Early discussions include, for instance, Frankfurter et al (1971), Brown (1979), or Jobson and Korkie (1981). For a recent study arguing that optimized portfolios do outperform equally-weighted portfolios, see Kritzman et al (2010).…”

Tail Event Driven ASset allocation: evidence from equity and mutual funds’ markets

“…The mean-variance (MV) portfolio selection has been widely used by the financial community and is the common benchmark for every newly introduced asset allocation strategy. The traditional Markowitz portfolio optimisation approach as has been shown in previous literature has some drawbacks especially for the case when p>n. The portfolio formed by using the classical mean-variance approach always results in extreme portfolio weights Jorion [1985], that fluctuate substantially over time and perform poorly in the sample estimation (for example, Frankfurter et al [1971], Simaan [1997], Kan and Zhou [2007]) as well as in the out-of-sample forecasting.…”

Robust Portfolio Optimization

“…According to Best and Grauer [5], the changes in the expected return of assets have a great effect on the estimation of efficient portfolios, and this kind of argument has been well studied by several scholars. Frankfurter, Phillips and Seagle [14] used the experimental results to show that the portfolio which selected by the mean variance optimization is unlikely to be as efficient as the equally weighted portfolio, and Britten-Jones [8] showed that the estimations of efficient portfolio weights are extremely sensitive to the estimation errors in the expected return and covariances of the assets.…”