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Title: Implied Expected Returns and the Choice of a Mean-Variance Efficient Portfolio Proxy
Authors: Ardia, David
Boudt, Kris
Keywords: Implied expected return
Model selection
Portfolio allocation
Reverse engineering
Risk-based allocation
Issue Date: 2013-09
Series/Report no.: Cahiers du CIRPÉE;13-28
Abstract: We propose to compute the implied expected returns from several candidate mean-variance efficient portfolios, exploiting the fundamental relation between the expected returns, covariance matrix and the corresponding set of mean-variance efficient portfolios. Over the 1987-2012 period and for the universe of S&P 100 stocks, we find that a mean-variance efficient investor would have been willing to pay between a 1.7% and 4.2% management fee to switch from mean-variance investing using implied expected returns from the market capitalization weighted portfolio to mean-variance investing using the implied expected returns from the equal-risk-contribution portfolio.
Appears in Collections:Cahiers de recherche du CIRPÉE

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