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On the stability of portfolio selection models

Author

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  • Cesarone, Francesco
  • Mango, Fabiomassimo
  • Mottura, Carlo Domenico
  • Ricci, Jacopo Maria
  • Tardella, Fabio

Abstract

One of the main issues in portfolio selection models consists in assessing the effect of the estimation errors of the parameters required by the models on the quality of the selected portfolios. Several studies have been devoted to this topic for the minimum variance and for several other minimum risk models. However, no sensitivity analysis seems to have been reported for the recent popular Risk Parity diversification approach, nor for other portfolio selection models requiring maximum gain–risk ratios.

Suggested Citation

  • Cesarone, Francesco & Mango, Fabiomassimo & Mottura, Carlo Domenico & Ricci, Jacopo Maria & Tardella, Fabio, 2020. "On the stability of portfolio selection models," Journal of Empirical Finance, Elsevier, vol. 59(C), pages 210-234.
    • Handle: RePEc:eee:empfin:v:59:y:2020:i:c:p:210-234
    DOI: 10.1016/j.jempfin.2020.10.003
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    References listed on IDEAS

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    Cited by:

    1. Hermans, Lieven & Kostka, Thomas & Vassallo, Danilo, 2023. "Asset allocation and risk taking under different interest rate regimes," Working Paper Series 2803, European Central Bank.
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    4. Salo, Ahti & Doumpos, Michalis & Liesiö, Juuso & Zopounidis, Constantin, 2024. "Fifty years of portfolio optimization," European Journal of Operational Research, Elsevier, vol. 318(1), pages 1-18.

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    More about this item

    Keywords

    Risk Parity; Estimation errors; Portfolio optimization; Stability measures; Profitability analysis; gain–risk ratio;
    All these keywords.

    JEL classification:

    • C60 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - General
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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