Mean-Variance Investing Basics
August 27, 2012 - Strategic Allocation
How and how well does mean-variance investing work? In his August 2012 draft book chapter entitled “Mean‐Variance Investing”, Andrew Ang compares outcomes for complex asset allocation strategies based on forecasted return statistics to those for very simple strategies such as equal weighting. He illustrates with a horse race among allocation strategies applied to four asset classes (U.S. government bonds, U.S. corporate bonds, U.S. stocks and international stocks), with portfolios reformed monthly based on return statistics estimated from five-year lagged rolling intervals and shorting constrained to no more than -100% for each asset. Using mathematical derivations and monthly return data for the example asset classes during 1973 through 2011, and contemporaneous one-month Treasury bill yields as the risk-free rate, he concludes that: Keep Reading