More on Estimation Risk and Simple Rules for Optimal Portfolio Selection

GORDON J. ALEXANDER, BRUCE G. RESNICK

Research output: Contribution to journalArticle

23 Scopus citations

Abstract

For the risk‐averse investor, consideration of estimation risk is important in selecting an expected‐utility‐maximizing portfolio. It has previously been shown that the composition of the tangency portfolio is unaffected by the recognition of estimation risk if the Full Covariance Model is used. Alternatively, if the Market Model is used, the composition of the tangency portfolio has been shown to be affected by the recognition of estimation risk. However, as is demonstrated in this paper, the effect will generally not be as substantive as previously believed and in many situations can be safely ignored. 1985 The American Finance Association

Original languageEnglish (US)
Pages (from-to)125-133
Number of pages9
JournalThe Journal of Finance
Volume40
Issue number1
DOIs
StatePublished - Mar 1985

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