Estimation Risk Modeling in Optimal Portfolio Selection : An Empirical Study from Emerging Markets
Joint Authors
Nathaphan, Sarayut
Chunhachinda, Pornchai
Source
Economics Research International
Issue
Vol. 2010, Issue 2010 (31 Dec. 2010), pp.1-10, 10 p.
Publisher
Hindawi Publishing Corporation
Publication Date
2010-09-16
Country of Publication
Egypt
No. of Pages
10
Main Subjects
Abstract EN
Efficient portfolio is a portfolio that yields maximum expected return given a level of risk or has a minimum level of risk given a level of expected return.
However, the optimal portfolios do not seem to be as efficient as intended.
Especially during financial crisis period, optimal portfolio is not an optimal investment as it does not yield maximum return given a specific level of risk, and vice versa.
One possible explanation for an unimpressive performance of the seemingly efficient portfolio is incorrectness in parameter estimates called “estimation risk in parameter estimates”.
Six different estimating strategies are employed to explore ex-post-portfolio performance when estimation risk is incorporated.
These strategies are traditional Mean-Variance (EV), Adjusted Beta (AB) approach, Resampled Efficient Frontier (REF), Capital Asset Pricing Model (CAPM), Single Index Model (SIM), and Single Index Model incorporating shrinkage Bayesian factor namely, Bayesian Single Index Model (BSIM).
Among the six alternative strategies, shrinkage estimators incorporating the single index model outperform other traditional portfolio selection strategies.
Allowing for asset mispricing and applying Bayesian shrinkage adjusted factor to each asset's alpha, a single factor namely, excess market return is adequate in alleviating estimation uncertainty.
American Psychological Association (APA)
Nathaphan, Sarayut& Chunhachinda, Pornchai. 2010. Estimation Risk Modeling in Optimal Portfolio Selection : An Empirical Study from Emerging Markets. Economics Research International،Vol. 2010, no. 2010, pp.1-10.
https://search.emarefa.net/detail/BIM-464092
Modern Language Association (MLA)
Nathaphan, Sarayut& Chunhachinda, Pornchai. Estimation Risk Modeling in Optimal Portfolio Selection : An Empirical Study from Emerging Markets. Economics Research International No. 2010 (2010), pp.1-10.
https://search.emarefa.net/detail/BIM-464092
American Medical Association (AMA)
Nathaphan, Sarayut& Chunhachinda, Pornchai. Estimation Risk Modeling in Optimal Portfolio Selection : An Empirical Study from Emerging Markets. Economics Research International. 2010. Vol. 2010, no. 2010, pp.1-10.
https://search.emarefa.net/detail/BIM-464092
Data Type
Journal Articles
Language
English
Notes
Includes bibliographical references
Record ID
BIM-464092