Least Squares Predictions and Mean-Variance Analysis

Enrique Sentana () and Enrique Sentana
Authors registered in the RePEc Author Service: Enrique Sentana

FMG Discussion Papers from Financial Markets Group

Abstract: We compare the Sharpe rations of investment funds which combine one riskless and one risky asset following: i) timing strategies which forecast excess returns using simple regressions; ii) a strategy which uses multiple regression instead; and iii) a passive allocation which combines the funds in i) with constant weightings. We show that iii) dominates i) and ii), as it implicitly uses the linear forecasting rule that maximizes the Sharpe ratio of actively traded portfolios, but the relative ranking of i) and ii) is generally unclear. We also discuss under what circumstances the performance of ii) and iii) coincides.

Date: 1999-01
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Related works:
Journal Article: Least Squares Predictions and Mean-Variance Analysis (2005)
Working Paper: Least Squares Predictions and Mean-Variance Analysis (1999)
Working Paper: Least Squares Predictions and Mean-Variance Analysis (1997)
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Persistent link: https://EconPapers.repec.org/RePEc:fmg:fmgdps:dp312

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