Optimal portfolio choice: A minimum expected loss approach

Andrés Ramírez-Hassan, Rosember Guerra Urzola*

*Corresponding author for this work

Research output: Contribution to journalArticleScientificpeer-review

Abstract

The mainstream in finance tackles portfolio selection based on a plug-in approach without consideration of the main objective of the inferential situation. We propose minimum expected loss (MELO) estimators for portfolio selection that explicitly consider the trading rule of interest. The asymptotic properties of our MELO proposal are similar to the plug-in approach. Nevertheless, simulation exercises show that our proposal exhibits better finite sample properties when compared to the competing alternatives, especially when the tangency portfolio is taken as the asset allocation strategy. We have also developed a graphical user interface to help practitioners to use our MELO proposal.
Original languageEnglish
Pages (from-to)97-120
JournalMathematics and Financial Economics
Volume14
Issue number1
DOIs
Publication statusPublished - 2020

Keywords

  • Bayesian estimation
  • ESTIMATION RISK
  • LOSS MELO ESTIMATORS
  • MARKET
  • MARKOWITZ
  • Minimum expected loss
  • NAIVE DIVERSIFICATION
  • Portfolio selection
  • SELECTION
  • VARIANCES

Fingerprint Dive into the research topics of 'Optimal portfolio choice: A minimum expected loss approach'. Together they form a unique fingerprint.

Cite this