Portfolios - EDHEC-Risk
Portfolios - EDHEC-Risk
Portfolios - EDHEC-Risk
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Implementing the Diversifiers<br />
• Estimating covariance matrix parameters is a serious<br />
challenge, but a number of statistical techniques can prove<br />
effective in addressing this challenge.<br />
• If statistical techniques are useful for estimating risk<br />
parameter, statistics on the other hand does not allow us to<br />
estimate expected returns reliably.<br />
• Direct estimation of expected returns from past returns is close<br />
to useless (Merton (1980)).<br />
• What can we do in practice?<br />
– Give up “naïvely” on expected return estimation<br />
– Give up “smartly” on expected return estimation<br />
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