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Forecasting Performance with the Harmonic Mean: Long-Term Investment Horizons in Shanghai Stock Exchange


  • Missiakoulis, Spyros
  • Vasiliou, Dimitrios
  • Eriotis, Nikolaos


Portfolio managers favor long-term investment horizons. Their performance is usually forecasted using either the arithmetic mean or the geometric mean. The harmonic mean is generally ignored as an instrument of financial and/or portfolio management. We examine the performance of the harmonic mean employing real life data on SSE180 Index and we compare it with the corresponding performances of arithmetic and geometric means. In all cases, the harmonic mean gave us the best performance.

Suggested Citation

  • Missiakoulis, Spyros & Vasiliou, Dimitrios & Eriotis, Nikolaos, 2012. "Forecasting Performance with the Harmonic Mean: Long-Term Investment Horizons in Shanghai Stock Exchange," Review of Applied Economics, Lincoln University, Department of Financial and Business Systems, vol. 8(1), pages 1-11, May.
  • Handle: RePEc:ags:reapec:143470

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    References listed on IDEAS

    1. Ercan Balaban & Asli Bayar & Robert Faff, 2006. "Forecasting stock market volatility: Further international evidence," The European Journal of Finance, Taylor & Francis Journals, vol. 12(2), pages 171-188.
    2. Ian Cooper, 1996. "Arithmetic versus geometric mean estimators: Setting discount rates for capital budgeting," European Financial Management, European Financial Management Association, vol. 2(2), pages 157-167.
    3. Brailsford, Timothy J. & Faff, Robert W., 1996. "An evaluation of volatility forecasting techniques," Journal of Banking & Finance, Elsevier, vol. 20(3), pages 419-438, April.
    4. Spyros Missiakoulis & Dimitrios Vasiliou & Nikolaos Eriotis, 2007. "A requiem for the use of the geometric mean in evaluating portfolio performance," Applied Financial Economics Letters, Taylor and Francis Journals, vol. 3(6), pages 403-408.
    5. Spyros Missiakoulis & Dimitrios Vasiliou & Nikolaos Eriotis, 2010. "Arithmetic mean: a bellwether for unbiased forecasting of portfolio performance," Managerial Finance, Emerald Group Publishing, vol. 36(11), pages 958-968, September.
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