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Portfolio Resampling in Malaysian Equity Market

Author

Listed:
  • Mansor Siti Nurleena Abu

    (1. School of Mathematical Sciences, Universiti Sains Malaysia, 11800 USM, Penang, Malaysia, Email: siti_nurleena@yahoo.com)

  • Baharum Adam

    (1. School of Mathematical Sciences, Universiti Sains Malaysia, 11800 USM, Penang, Malaysia, Email: siti_nurleena@yahoo.com)

  • Kamil Anton Abdulbasah

    (2. School of Distance Education, Universiti Sains Malaysia, 11800 USM, Penang, Malaysia Email: anton_kamil@yahoo.com)

Abstract

Since the work of Markowitz (1959) and Sharpe (1964), Mean-Variance (MV) analysis has been a central focus of financial economics. Problems involving quadratic objective functions generally incorporate a MV analysis. However, estimation error is known to have huge impact on MV optimized portfolios, which is one of the primary reasons to make standard Markowitz optimization unfeasible in practice. In these studies we focus on a relatively new approach introduced by Michaud (1998), resampled efficiency. Michaud argues that the limitations of MV efficiency in practice generally derive from a lack of statistical understanding of MV optimization. He advocates a statistical view of MV optimization that leads to new procedures that can reduce estimation error. Optimal portfolio based on MV efficiency and resampled efficiency is compared in an empirical out-of sample study in term of their performances using Malaysian stock market. We divided the data to three groups, daily, weekly and monthly. We found that, resampled efficiency performed well and group of daily and weekly data have the least estimation error.

Suggested Citation

  • Mansor Siti Nurleena Abu & Baharum Adam & Kamil Anton Abdulbasah, 2006. "Portfolio Resampling in Malaysian Equity Market," Monte Carlo Methods and Applications, De Gruyter, vol. 12(3), pages 261-269, October.
    • Handle: RePEc:bpj:mcmeap:v:12:y:2006:i:3:p:261-269:n:1
    DOI: 10.1515/156939606778705146
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    References listed on IDEAS

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    1. Jorion, Philippe, 1985. "International Portfolio Diversification with Estimation Risk," The Journal of Business, University of Chicago Press, vol. 58(3), pages 259-278, July.
    2. Mark Britten‐Jones, 1999. "The Sampling Error in Estimates of Mean‐Variance Efficient Portfolio Weights," Journal of Finance, American Finance Association, vol. 54(2), pages 655-671, April.
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