Sample vs. Population Mean-Variance Efficient Portfolios

Haim Levy and Yoram Kroll
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Haim Levy: Hebrew University of Jerusalem and University of Pennsylvania
Yoram Kroll: Hebrew University of Jerusalem and University of Pennsylvania

Management Science, 1980, vol. 26, issue 11, 1108-1116

Abstract: It is common to use historical data in calculating the rates of return of risky options, and these data are used to calculate the mean and the variance, which are employed in the (MV) preference ranking. In this paper we study the effect of possible sampling error on the portfolio ranking. It is shown that in order to keep the error at a reasonable level (5 percent), one needs 50--100 observations, a number that is rarely used in the (MV) comparison of portfolios. The results are almost independent of the correlation between the portfolios.

Keywords: portfolio theory; estimation (search for similar items in EconPapers)
Date: 1980
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Persistent link: https://EconPapers.repec.org/RePEc:inm:ormnsc:v:26:y:1980:i:11:p:1108-1116

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