Arithmetic and Continuous Return Mean-Variance Efficient Frontiers

Posted: 22 May 2019

See all articles by Robert Ferguson

Robert Ferguson

AnswersToGo

Dean Leistikow

Fordham University - Finance Area

Susana Yu

Iona College

Multiple version iconThere are 2 versions of this paper

Date Written: March 23, 2009

Abstract

The arithmetic mean-variance efficient frontier shows that taking more risk is always rewarded with higher expected arithmetic return. However, expected arithmetic return is a poor indicator of long-term arithmetic return, which corresponds to expected continuous return. For the continuous return mean-variance efficient frontier, expected continuous return initially rises, then declines and becomes negative without limit as risk increases. Too much aggressiveness can lead to disaster, even without borrowing.

Keywords: Mean-Variance Frontier, Long-Term Return, Leverage

JEL Classification: G10, G11, G14

Suggested Citation

Ferguson, Robert and Leistikow, Dean and Yu, Susana, Arithmetic and Continuous Return Mean-Variance Efficient Frontiers (March 23, 2009). https://doi.org/10.3905/JOI.2009.18.3.062. Available at SSRN: https://ssrn.com/abstract=3018114 or http://dx.doi.org/10.2139/ssrn.3018114

Robert Ferguson (Contact Author)

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Dean Leistikow

Fordham University - Finance Area ( email )

33 West 60th Street
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Susana Yu

Iona College ( email )

715 North Avenue
New Rochelle, NY 10801
United States

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