Sensible Return Forecasting for Portfolio Management

Gregory Connor

Financial Analysts Journal, 1997, vol. 53, issue 5, 44-51

Abstract: Black and Litterman showed that a Bayesian adjustment to expected-return forecasts makes them more suitable for use in portfolio management. A new adjustment applies directly to return-forecasting models rather than to the forecasts they produce. This approach eliminates the need for an arbitrary adjustment when forecasts are inserted into a portfolio-choice model and integrates the return-forecasting and portfolio-choice steps of quantitative investment management.

Date: 1997
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DOI: 10.2469/faj.v53.n5.2116

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