ESTIMATION AND SELECTION BIAS IN MEAN-VARIANCE PORTFOLIO SELECTION

Much research has focused on the problem of selecting portfolios without the benefit of parametric measures of risk and return. In this paper, a Monte Carlo technique is used to isolate the extent and nature of the problems introduced by this practice. The technique is employed in the context of classical statistical methodology without permitting short sales. It is shown that using estimators of expected return and risk not only obscures parametric values, but also affects portfolio composition in the Markowitz framework. In this study, these two components of bias are isolated and measured.     

MARKET TIMING AND MUTUAL FUND PORTFOLIO COMPOSITION

This study uses a methodology that is independent of beta estimates to provide empirical evidence on the success of market timing by mutual fund managers. A fund's success at market timing is evaluated by determining if the percentage of the portfolio invested in stocks increases prior to an upturn in the general level of stock market prices and declines prior to a downturn in the level of stock prices. No evidence is found that managers possess, as a group, any market timing ability.     

EX-ANTE EXPECTATIONS AND PORTFOLIO SELECTION

This paper examines differences among investors who are relatively optimistic/pessimistic regarding the performance of the stock market in terms of portfolio composition and trading activity. Findings indicate that investors more pessimistic regarding the stock market are likely to: (1) channel their funds into leveraged and tax advantageous investments, and (2) trade less frequently on the stock market.