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Effects of Uncertain and Nonstationary Parameters upon Capital Market Equilibrium Conditions

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  • Barry, Christopher B.

Abstract

Formal models for portfolio analysis, such as Markowitz [13], are frequently based upon mean-variance analyses and involve the estimation of a mean vector and a variance-covariance matrix describing expected returns and variability of returns for all securities under consideration. These parameter estimates play a major role in the selection of a single, optimal portfolio. Kalymon [9] and Barry [1] have considered the effects of parameter uncertainty upon individual investors' inferences and decisions in the context of portfolio selection, and Barry and Winkler [2] have similarly considered the impact of nonstationary means upon portfolio selection decisions by individual investors.

Suggested Citation

  • Barry, Christopher B., 1978. "Effects of Uncertain and Nonstationary Parameters upon Capital Market Equilibrium Conditions," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 13(3), pages 419-433, September.
    • Handle: RePEc:cup:jfinqa:v:13:y:1978:i:03:p:419-433_00
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    Cited by:

    1. D. J. Johnstone, 2021. "Accounting information, disclosure, and expected utility: Do investors really abhor uncertainty?," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 48(1-2), pages 3-35, January.
    2. Jun-Koo, Kang & Lee, Yul W., 1996. "The pricing of convertible debt offerings," Journal of Financial Economics, Elsevier, vol. 41(2), pages 231-248, June.
    3. Billings, Mary Brooke & Jennings, Robert & Lev, Baruch, 2015. "On guidance and volatility," Journal of Accounting and Economics, Elsevier, vol. 60(2), pages 161-180.
    4. D.J. Johnstone, 2015. "Information and the Cost of Capital in a Mean-Variance Efficient Market," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 42(1-2), pages 79-100, January.
    5. Karagiannidis, Iordanis & Vozlyublennaia, Nadia, 2016. "Limits to mutual funds' ability to rely on mean/variance optimization," Journal of Empirical Finance, Elsevier, vol. 37(C), pages 282-292.
    6. George M. Frankfurter & Christopher G. Lamoureux, 1989. "Estimation And Selection Bias In Mean-Variance Portfolio Selection," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 12(2), pages 173-181, June.
    7. Chincarini, Ludwig B. & Kim, Daehwan & Moneta, Fabio, 2020. "Beta and firm age," Journal of Empirical Finance, Elsevier, vol. 58(C), pages 50-74.

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