The DOI matches its Crossref record; 3 of the 3 references it cites were found in a registry or an index.
Portfolio Selection with Parameter and Model Uncertainty: A Multi-Prior Approach
Abstract
We develop a model for an investor with multiple priors and aversion to ambiguity. We characterize the multiple priors by a “confidence interval” around the estimated expected returns and we model ambiguity aversion via a minimization over the priors. Our model has several attractive features: (1) it has a solid axiomatic foundation; (2) it is flexible enough to allow for different degrees of uncertainty about expected returns for various subsets of assets and also about the return-generating model; and (3) it delivers closed-form expressions for the optimal portfolio. Our empirical analysis suggests that, compared with portfolios from classical and Bayesian models, ambiguity-averse portfolios are more stable over time and deliver a higher out-of sample Sharpe ratio. (JEL G11)
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Citations
Cites
“Risk, Ambiguity, and the Savage Axioms.”
Ellsberg, D. (1961) · The Quarterly Journal of Economics · doi:10.2307/1884324 · Cited by 7,891
A well-conditioned estimator for large-dimensional covariance matrices
Ledoit, O., & Wolf, M. (2004) · Journal of Multivariate Analysis · doi:10.1016/s0047-259x(03)00096-4 · Cited by 3,046
Preference and belief: Ambiguity and competence in choice under uncertainty
Heath, C., & Tversky, A. (1991) · Journal of Risk and Uncertainty · doi:10.1007/bf00057884 · Cited by 1,654
Cited by
Optimal Versus Naive Diversification: How Inefficient is the 1/ N Portfolio Strategy?
DeMiguel, V., Garlappi, L., & Uppal, R. (2009) · Review of Financial Studies · doi:10.1093/rfs/hhm075 · Cited by 3,199
Self-citationOptimal Portfolio Choice with Parameter Uncertainty
Kan, R., & Zhou, G. (2007) · Journal of Financial and Quantitative Analysis · doi:10.1017/s0022109000004129 · Cited by 699
60 Years of portfolio optimization: Practical challenges and current trends
Kolm, P. N., Tütüncü, R., & Fabozzi, F. J. (2014) · European Journal of Operational Research · doi:10.1016/j.ejor.2013.10.060 · Cited by 632
Ambiguity, Learning, and Asset Returns
(2012) · Econometrica · doi:10.3982/ecta7618 · Cited by 404
Metadata
- Authors
- Garlappi, L., Uppal, R., & Wang, T.
- Venue
- Review of Financial Studies
- Publisher
- Oxford University Press (OUP)
- Published
- 2006-05-15
- Volume
- 20
- Issue
- 1
- Pages
- 41-81
- ISSN
- 0893-9454 (ISSN-L)
- 1465-7368
- OpenAlex
- W3124539603
- Cited by
- 686
- References
- 3
- FWCI
- 37.41
- Type
- journal article
- Language
- en
- Open access
- closed
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Contains information from the Semantic Scholar Academic Graph Datasets, made available under the ODC Attribution License (ODC-BY 1.0).
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