The selection of multinational equity portfolios: forecasting models and estimation risk
The problem considered is the selection of a portfolio of international assets, particularly the forecasting of the inputs to a selection algorithm. Four models of the asset return generating process are considered, two of which ignore the international nature of the universe of assets, two which exploit it in different ways. Several estimation methods are considered for each component: expected return, variance and covariance of returns. The combinations of model and estimation method are first evaluated in terms of their forecasting performance for the components mentioned for the individual assets. The universe used is the components of the Financial Times Eurotrack 100 Index. Significant differences were found between the forecasting accuracy of the methods considered for each component. In the final stage of the analysis, a comparison of the returns on portfolios chosen using each combination showed a significant difference. The analysis suggests that the choice of estimation method is more critical than the choice of pricing model.
Volume (Year): 6 (2000)
Issue (Month): 3 ()
|Contact details of provider:|| Web page: http://www.tandfonline.com/REJF20|
|Order Information:||Web: http://www.tandfonline.com/pricing/journal/REJF20|
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Jorion, Philippe, 1986. "Bayes-Stein Estimation for Portfolio Analysis," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 21(03), pages 279-292, September.
- Andrew Harvey & Esther Ruiz & Neil Shephard, 1994. "Multivariate Stochastic Variance Models," Review of Economic Studies, Oxford University Press, vol. 61(2), pages 247-264.
- Frost, Peter A. & Savarino, James E., 1986. "An Empirical Bayes Approach to Efficient Portfolio Selection," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 21(03), pages 293-305, September.
- Bollerslev, Tim & Engle, Robert F & Wooldridge, Jeffrey M, 1988. "A Capital Asset Pricing Model with Time-Varying Covariances," Journal of Political Economy, University of Chicago Press, vol. 96(1), pages 116-31, February.
- Bollerslev, Tim & Chou, Ray Y. & Kroner, Kenneth F., 1992. "ARCH modeling in finance : A review of the theory and empirical evidence," Journal of Econometrics, Elsevier, vol. 52(1-2), pages 5-59.
- Meade, Nigel, 1993. "Forecasting the return and risk on a portfolio of assets," International Journal of Forecasting, Elsevier, vol. 9(3), pages 373-386, November.
- Solnik, Bruno, 1983. " International Arbitrage Pricing Theory," Journal of Finance, American Finance Association, vol. 38(2), pages 449-57, May.
- Eun, Cheol S. & Resnick, Bruce G., 1992. "Forecasting the correlation structure of share prices: A test of new models," Journal of Banking & Finance, Elsevier, vol. 16(3), pages 643-656, June.
- Roll, Richard & Ross, Stephen A, 1980. " An Empirical Investigation of the Arbitrage Pricing Theory," Journal of Finance, American Finance Association, vol. 35(5), pages 1073-1103, December.
- John L. G. Board & Charles M. S. Sutcliffe, 1994. "Estimation Methods in Portfolio Selection and the Effectiveness of Short Sales Restrictions: UK Evidence," Management Science, INFORMS, vol. 40(4), pages 516-534, April.
- Ross, Stephen A., 1976. "The arbitrage theory of capital asset pricing," Journal of Economic Theory, Elsevier, vol. 13(3), pages 341-360, December.
- 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.
- Yusif Simaan, 1997. "Estimation Risk in Portfolio Selection: The Mean Variance Model Versus the Mean Absolute Deviation Model," Management Science, INFORMS, vol. 43(10), pages 1437-1446, October.
- Best, Michael J & Grauer, Robert R, 1991. "On the Sensitivity of Mean-Variance-Efficient Portfolios to Changes in Asset Means: Some Analytical and Computational Results," Review of Financial Studies, Society for Financial Studies, vol. 4(2), pages 315-42.
- Adler, Michael & Dumas, Bernard, 1983. " International Portfolio Choice and Corporation Finance: A Synthesis," Journal of Finance, American Finance Association, vol. 38(3), pages 925-84, June.
When requesting a correction, please mention this item's handle: RePEc:taf:eurjfi:v:6:y:2000:i:3:p:259-279. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Michael McNulty)
If references are entirely missing, you can add them using this form.