Normative portfolio theory

Yufen Fu and George W. Blazenko

International Review of Financial Analysis, 2017, vol. 52, issue C, 240-251

Abstract: In this paper, we correct the adverse impact of estimation risk on both portfolio weights and performance with two new equity allocation methods we implement with estimation-free and estimated ex-ante returns. Portfolios with estimation-free ex-ante returns and systematic-to-unsystematic risk weights have statistically higher Sharpe ratios than both similar portfolios with estimated ex-ante returns and 1/N′th portfolios. Optimal portfolio methods with well-behaved weights guide investors in a way not hitherto possible (normative portfolio theory).

Keywords: Applied portfolio theory; Estimation-free ex-ante returns; Common share portfolio appeal (search for similar items in EconPapers)
JEL-codes: G14 G15 (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:52:y:2017:i:c:p:240-251

DOI: 10.1016/j.irfa.2017.07.002

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