Estimation risk in portfolio selection: The mean variance model versus the mean absolute deviation model

• 成果类型: Article
• 署名作者: Simaan, Y
• 刊物名称: MANAGEMENT SCIENCE
• ISSN/ISSBN: 0025-1909
• DOI: 10.1287/mnsc.43.10.1437
• 发表日期: 1997
• 页码: 1437-1446
• 关键词: portfolio analysis; Estimation risk; mean-variance portfolio analysis; INVESTMENT ANALYSIS

摘要

Konno and Yamazaki (1992) propose the mean absolute deviation (MAD) model as an alternative to the mean variance (MV) model. They claim it retains all the positive features of the MV model, saves the investor computing time, and does not require the covariance matrix. This paper shows that ignoring the covariance matrix results in greater estimation risk that outweighs the benefits. In both models, estimation error is more;severe in small samples (small. observations relative to the number of assets) and for investors with high risk tolerance. The MV model's lower estimation risk is most striking in small samples and for investors with a low risk tolerance.