Rules-of-thumb for the Impact of Parameter Uncertainty on Investor Outcomes

10 Pages Posted: 29 Jun 2020 Last revised: 6 Aug 2020

See all articles by John Southall

John Southall

Legal & General Investment Management Limited

Date Written: May 25, 2020

Abstract

Under a simple setup we investigate the impact of parameter uncertainty on risk-adjusted returns that correspond to expected exponential utilities. In particular, we present rules-of- thumb for the impact of parameter uncertainty on the risk-adjusted returns of non-learning and learning investment strategies. These enable investors to easily approximate how much additional wealth they would need now to compensate for parameter uncertainty

Keywords: Parameter uncertainty; Estimation risk; Rules-of-thumb; Learning; Risk-adjusted returns

JEL Classification: D81, C63

Suggested Citation

Southall, John, Rules-of-thumb for the Impact of Parameter Uncertainty on Investor Outcomes (May 25, 2020). Available at SSRN: https://ssrn.com/abstract=3610358 or http://dx.doi.org/10.2139/ssrn.3610358

John Southall (Contact Author)

Legal & General Investment Management Limited ( email )

United States

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