With the insight that traditional mean-variance analysis
measures of risk are not sufficient for diversification during, for example, market crashes, the Ziembas demonstrate how investors fail to diversify enough, describe the incentives in both directions, unpack rewards and dangers, and analyze results of a range of potential outcomes.
According to EDHEC, this is a formidable challenge that severely exacerbates the dimensionality problem already present with mean-variance analysis.
They also find that it is only when improved estimators are used that portfolio selection with higher order moments consistently dominates mean-variance analysis from an out-of-sample perspective.
These accounting and performance measurements go beyond traditional mean-variance analysis
, recognizing the need to understand the often non-normally distributed return behavior of private equity, hedge funds and real estate," said Christopher Mullooly, product manager for Investment Risk and Analytical Services at Northern Trust.
In addition, mean-variance analysis treats financial wealth in isolation from income.
An important difficulty with mean-variance analysis becomes clear when one considers the classic problem of allocating a portfolio among three broad asset classes: stocks, bonds, and money market funds ("cash").
in Portfolio Choice and Capital Markets, New York: Basil Blackwell.
The results of mean-variance analysis are often presented in the context of the efficient frontier, which shows expected portfolio return as a strict function of risk (Figure 1).
There are few acceptable alternatives to mean-variance analysis, and it is commonly used throughout the investment-management business by brokerage firms, mutual funds, financial managers, and professionals responsible for institutional asset management.
We find that, contrary to recent Government policy and the results from a simple mean-variance analysis, the welfare-maximising policy requires that all public debt be denominated in foreign currency.
Using a mean-variance analysis, we find that Treasury should issue only domestic debt.
Focuses on classical static mean-variance analysis
and portfolio immunization, scenario-based models, multi-period dynamic portfolio optimization, and the relationships between classes of models