Mean-variance Vs. full-scale optimization: broad evidence for the UK

Hagströmer, Björn, Anderson, Richard, Binner, Jane, Elger, Thomas and Birger, Nilsson (2007). Mean-variance Vs. full-scale optimization: broad evidence for the UK. Working Paper. Aston University, Birmingham.

Abstract

This article investigates the performance of a model called Full-Scale Optimisation, which was presented recently and is used for financial investment advice. The investor’s preferences of expected risk and return are entered into the model, and a recommended portfolio is produced. This model is theoretically more accurate than the mainstream investment advice model, called Mean-Variance Optimization, as there are fewer assumptions made. Our investigation of the model’s performance is broader when it comes to investor preferences, and more general when it comes to investment type, as compared to previous studies. Our investigation shows that Full-Scale Optimisation is more widely applicable than earlier known.

Divisions: Aston Business School
Aston Business School > Economics finance & entrepreneurship
Additional Information: RP0711
Uncontrolled Keywords: portfolio choice,utility maximisation,full-scale optimisation,S-shaped utility,bilinear utility
Published Date: 2007-03
Authors: Hagströmer, Björn
Anderson, Richard
Binner, Jane
Elger, Thomas
Birger, Nilsson

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