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An Investigation Of Alternative Estimators Of Expected Returns In Mean‐Variance Analysis

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  • Jonathan Fletcher

Abstract

In this paper I examine the out‐of‐sample performance of five mean‐variance strategies using different models of expected returns within a U.K. industry asset‐allocation framework between January 1970 and December 1991. The performance of the five strategies is evaluated with different measures. I find superior performance for the strategy that uses conditioning information to estimate expected returns. This consistently outperforms the two passive benchmarks and earns positive abnormal returns over the sample period regardless of how frequently the portfolio is revised and whether portfolio restrictions are imposed.

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  • Jonathan Fletcher, 1997. "An Investigation Of Alternative Estimators Of Expected Returns In Mean‐Variance Analysis," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 20(1), pages 129-143, March.
    • Handle: RePEc:bla:jfnres:v:20:y:1997:i:1:p:129-143
    DOI: 10.1111/j.1475-6803.1997.tb00240.x
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    Cited by:

    1. Fletcher, Jonathan, 2011. "Do optimal diversification strategies outperform the 1/N strategy in U.K. stock returns?," International Review of Financial Analysis, Elsevier, vol. 20(5), pages 375-385.
    2. Fletcher, Jonathan & Hillier, Joe, 2002. "An examination of the economic significance of stock return predictability in UK stock returns," International Review of Economics & Finance, Elsevier, vol. 11(4), pages 373-392.
    3. Mainik, Georg & Mitov, Georgi & Rüschendorf, Ludger, 2015. "Portfolio optimization for heavy-tailed assets: Extreme Risk Index vs. Markowitz," Journal of Empirical Finance, Elsevier, vol. 32(C), pages 115-134.
    4. Allen, D. & Lizieri, C. & Satchell, S., 2012. "Mean-Variance versus 1/N: What if we can forecast? (Updated 22nd December 2013)," Cambridge Working Papers in Economics 1244, Faculty of Economics, University of Cambridge.
    5. Fletcher, Jonathan & Hillier, Joe, 2005. "An examination of linear factor models in country equity asset allocation strategies," The Quarterly Review of Economics and Finance, Elsevier, vol. 45(4-5), pages 808-823, September.

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