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Practical Portfolio Optimization

Wednesday 7 November 2012, 4.30pm-6.00pm
1.14, New Academic Building

Professor Victor DeMiguel

Professor of Management Science and Operations
London Business School

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Abstract:

The Nobel laureate Harry Markowitz showed that an investor who cares only about the mean and variance of portfolio returns should hold a portfolio on the efficient frontier. To implement these portfolios in practice, one needs to estimate the means and covariances of asset returns. Traditionally, the sample means and covariances have been used for this purpose. But due to estimation error, the portfolios that rely on the sample estimates typically perform poorly out of sample. In this talk, we will first illustrate the difficulties inherent in estimating mean-variance portfolios, and then we will discuss several approaches that can be used to overcome these difficulties in practice.

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        Victor DeMiguel