Data-generating process uncertainty: What difference does it make in portfolio decisions?

• 成果类型: Article
• 署名作者: Tu, J; Zhou, GF
• 署名单位: Washington University (WUSTL); Tsinghua University
• 刊物名称: JOURNAL OF FINANCIAL ECONOMICS
• ISSN/ISSBN: 0304-405X
• DOI: 10.1016/j.jfineco.2003.05.003
• 发表日期: 2004
• 页码: 385-421
• 关键词: Asset pricing tests; investments; data generating process; t distribution; Bayesian analysis

摘要

As the usual normality assumption is firmly rejected by the data, investors encounter a data-generating process (DGP) uncertainty in making investment decisions. In this paper, we propose a novel way to incorporate uncertainty about the DGP into portfolio analysis. We find that accounting for fat tails leads to nontrivial changes in both parameter estimates and optimal portfolio weights, but the certainty-equivalent losses associated with ignoring fat tails are small. This Suggests that the normality assumption works well in evaluating portfolio performance for a mean-variance investor. (C) 2003 Elsevier B.V. All rights reserved.