Portfolio Selection under Parameter Uncertainty using a Predictive Distribution

Ji Im, Hyun Lim, Sung Choi and Denis Nikitin
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Ji Im: Department of Mathematics, Pohang University of Science and Technology
Hyun Lim: Department of Mathematics, Pohang University of Science and Technology
Sung Choi: Department of Mathematics, Pohang University of Science and Technology

Annals of Economics and Finance, 2007, vol. 8, issue 2, 305-312

Abstract: We propose a portfolio selection model based on a generalized hyperbolic predictive distribution. This distribution incorporates uncertainties in mean and volatility of market returns. We then select an optimal portfolio with expected utility calculated under the predictive distribution. We demonstrate the performance of the new approach by applying it to simulated and real market data.

Keywords: Portfolio Selection; Parameter Uncertainty; Estimation Error; Bayesian Framework; Predictive Distribution; Generalized Hyperbolic Distribution; Utility Function; Utility Restoration Ratio (search for similar items in EconPapers)
JEL-codes: C11 G11 (search for similar items in EconPapers)
Date: 2007
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:cuf:journl:y:2007:v:8:i:2:p:305-312

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