Abstract

http://ssrn.com/abstract=898241
 
 

References (27)



 
 

Citations (6)



 


 



Bayes vs. Resampling: A Rematch


John Liechty


Pennsylvania State University, University Park

Campbell R. Harvey


Duke University - Fuqua School of Business; National Bureau of Economic Research (NBER)

Merrill W. Liechty


Drexel University - Department of Decision Sciences

2008

Journal of Investment Management, Vol. 6 No. 1, First Quarter 2008

Abstract:     
We replay an investment game that compares the performance of a player using Bayesian methods for determining portfolio weights with a player that uses the Monte Carlo based resampling approach advocated in Michaud (1998). Markowitz and Usmen (2003) showed that the Michaud player always won. However, in the original experiment, the Bayes player was handicapped because the algorithm that was used to evaluate the predictive distribution of the portfolio provided only a rough approximation. We level the playing field by allowing the Bayes player to use a more standard algorithm. Our results sharply contrast with those of the original game. The final part of our paper proposes a new investment game that is much more relevant for the average investor - a one-period ahead asset allocation. For this game, the Bayes player always wins.

Number of Pages in PDF File: 36

Keywords: Bayesian decision problem, parameter uncertainty, optimal portfolios, utility function maximization, resampling

JEL Classification: G11, G12, C11

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Date posted: April 26, 2006  

Suggested Citation

Liechty, John and Harvey, Campbell R. and Liechty, Merrill W., Bayes vs. Resampling: A Rematch (2008). Journal of Investment Management, Vol. 6 No. 1, First Quarter 2008 . Available at SSRN: http://ssrn.com/abstract=898241

Contact Information

John Liechty
Pennsylvania State University, University Park ( email )
University Park
State College, PA 16802
United States
Campbell R. Harvey (Contact Author)
Duke University - Fuqua School of Business ( email )
Box 90120
Durham, NC 27708-0120
United States
919-660-7768 (Phone)
919-660-8030 (Fax)
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Merrill W. Liechty
Drexel University - Department of Decision Sciences ( email )
3141 Chestnut St
Philadelphia, PA 19104
United States
215-895-2459 (Phone)
215-895-2907 (Fax)
HOME PAGE: http://www.pages.drexel.edu/~mwl25/
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