Arithmetic Mean: A Bellwether for Unbiased Forecasting of Portfolio Performance

23 Pages Posted: 5 Mar 2008

See all articles by Spyros Missiakoulis

Spyros Missiakoulis

Hellenic Open University

Nikolaos Eriotis

National and Kapodistrian University of Athens

Dimitrios Vasiliou

Athens University of Economics and Business

Abstract

Estimates of terminal value of long-tern investment horizons are biased. Unbiased estimates exist only for investment horizon of one time-period. The purpose of our paper is to suggest a method based on the arithmetic mean in order to obtain unbiased estimates for the terminal value of long-tern investment horizons. We suggest equating the time-period of our observed data to the time-period of the investment horizons. The performance of the suggested method is statistically investigated with the help of loss functions or error statistics. It produced the closest values to the actual ones than any other suggested averaging method when we examined a ten-year investment horizons for Standard & Poor's 500 index and on Dow Jones Industrial index.

Keywords: Portfolio evaluation, Unbiased estimation, Long-term investment horizon, Arithmetic mean, Geometric mean, Logarithmic mean.

JEL Classification: G11

Suggested Citation

Missiakoulis, Spyros and Eriotis, Nikolaos and Vasiliou, Dimitrios, Arithmetic Mean: A Bellwether for Unbiased Forecasting of Portfolio Performance. Available at SSRN: https://ssrn.com/abstract=1102194 or http://dx.doi.org/10.2139/ssrn.1102194

Spyros Missiakoulis

Hellenic Open University ( email )

Parodos Aristotelous 18
Patra, 26335
Greece

Nikolaos Eriotis

National and Kapodistrian University of Athens ( email )

5 Stadiou Strt
Athens, 12131
Greece

Dimitrios Vasiliou (Contact Author)

Athens University of Economics and Business ( email )

76 Patission Street
Athens, 104 34
Greece

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