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Imputing Expected Security Returns from Portfolio Composition

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  • Sharpe, William F.

Abstract

The normative procedures of Markowitz [4], Sharpe [6], and others can be utilized to determine an optimal portfolio (set of security holdings) given estimates of risk, relevant constraints, and expected returns on securities. Building on these foundations, the positive models of Sharpe [7], Lintner [3], Mossin [5], and others assume that investors form portfolios as if they were following such procedures. We observe considerable differences in portfolio composition, some of which undoubtedly stem from differences in expectations. Yet the predictions of most investors are either made implicitly or, if made explicitly, are jealously guarded and hence cannot be observed by outsiders.

Suggested Citation

  • Sharpe, William F., 1974. "Imputing Expected Security Returns from Portfolio Composition," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 9(3), pages 463-472, June.
    • Handle: RePEc:cup:jfinqa:v:9:y:1974:i:03:p:463-472_01
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    Cited by:

    1. Elizabeth Watson, 2012. "Risk, return, and beyond: A conceptual analysis of some factors influencing New Zealanders’ investment decisions," Reserve Bank of New Zealand Analytical Notes series AN2012/07, Reserve Bank of New Zealand.
    2. Leon (Liang) Xin & Shanshan Ding, 2021. "Expected returns with leverage constraints and target returns," Journal of Asset Management, Palgrave Macmillan, vol. 22(3), pages 200-208, May.
    3. Krzysztof Echaust & Krzysztof Piasecki, 2016. "Black-Litterman model with intuitionistic fuzzy posterior return," Papers 1601.00354, arXiv.org.
    4. Fuhrer, Adrian & Hock, Thorsten, 2023. "Uncertainty in the Black–Litterman model: Empirical estimation of the equilibrium," Journal of Empirical Finance, Elsevier, vol. 72(C), pages 251-275.
    5. Susan Thorp, 2004. "That Courage is not inconsistent with Caution: Foreign Currency Hedging for Superannuation Funds," Econometric Society 2004 Australasian Meetings 148, Econometric Society.
    6. Hazel Bateman & Susan Thorp, 2005. "Decentralised Portfolio Management: Analysis of Australian Accumulation Funds," Research Paper Series 161, Quantitative Finance Research Centre, University of Technology, Sydney.
    7. Heuts, R.M.J., 1977. "Capital market models for portfolio selection (A revised version)," Other publications TiSEM d8385669-c29b-4bf1-ba60-7, Tilburg University, School of Economics and Management.
    8. Rudi Zagst & Michaela Pöschik, 2008. "Inverse portfolio optimisation under constraints," Journal of Asset Management, Palgrave Macmillan, vol. 9(3), pages 239-253, September.
    9. J. Benson Durham, 2014. "Arbitrage-free affine models of the forward price of foreign currency," Staff Reports 665, Federal Reserve Bank of New York.
    10. Yan, Lei & Garcia, Philip, 2017. "Portfolio investment: Are commodities useful?," Journal of Commodity Markets, Elsevier, vol. 8(C), pages 43-55.
    11. Gabriel A. Giménez Roche, 2016. "Entrepreneurial ignition of the business cycle: The corporate finance of malinvestment," The Review of Austrian Economics, Springer;Society for the Development of Austrian Economics, vol. 29(3), pages 253-276, September.

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