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Time Weighted Portfolio Optimisation

Author

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  • Stephen L. Lee
  • Simon Stevenson

Abstract

In estimating the inputs into the Modern Portfolio Theory (MPT) portfolio optimisation problem it is usual to use equal weighted historic data. Equal weighting of the data, however, does not take account of the current state of the market. Consequently this approach is unlikely to perform well in any subsequent period as the data is still reflecting market conditions that are no longer valid. The need for some return-weighting scheme that gives greater weight to the most recent data would seem desirable. Consequently this study uses returns data which are weighted to give greater weight to the most recent observations to see if such a weighting scheme can offer improved ex ante performance over that based on un-weighted data.

Suggested Citation

  • Stephen L. Lee & Simon Stevenson, 2001. "Time Weighted Portfolio Optimisation," ERES eres2001_207, European Real Estate Society (ERES).
    • Handle: RePEc:arz:wpaper:eres2001_207
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    References listed on IDEAS

    as
    1. Stephen Lee, 1998. "The Inter-Temporal Stability of Real Estate Returns: An Empirical Investigation," ERES eres1998_141, European Real Estate Society (ERES).
    2. 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.
    3. Colin Lizieri & Charles Ward, 2000. "Commercial Real Estate Return Distributions: A Review Of Literature And Empirical Evidence," Real Estate & Planning Working Papers rep-wp2000-01, Henley Business School, University of Reading.
    4. repec:arz:wpaper:eres1998-141 is not listed on IDEAS
    5. Stephen Lee & Simon Stevenson, 2000. "Real Estate Portfolio Construction And Estimation Risk," ERES eres2000_070, European Real Estate Society (ERES).
    6. Akgiray, Vedat, 1989. "Conditional Heteroscedasticity in Time Series of Stock Returns: Evidence and Forecasts," The Journal of Business, University of Chicago Press, vol. 62(1), pages 55-80, January.
    7. Satchell, Stephen & Knight, John, 2000. "Return Distributions in Finance," Elsevier Monographs, Elsevier, edition 1, number 9780750647519.
    8. Jobson, J D & Korkie, Bob M, 1981. "Performance Hypothesis Testing with the Sharpe and Treynor Measures," Journal of Finance, American Finance Association, vol. 36(4), pages 889-908, September.
    9. David Walsh & Glenn Yu-Gen Tsou, 1998. "Forecasting index volatility: sampling interval and non-trading effects," Applied Financial Economics, Taylor & Francis Journals, vol. 8(5), pages 477-485.
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    More about this item

    JEL classification:

    • R3 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location

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