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Potential losses from incorporating return predictability into portfolio allocation/ created by Dragon Yongjun Tang

By: Material type: TextTextSeries: Australian journal of management ; Volume 39, number 1,Los Angeles : Sage, 2014Content type:
  • text
Media type:
  • unmediated
Carrier type:
  • volume
ISSN:
  • 03128962
Subject(s): LOC classification:
  • HD31 AUS
Online resources: Abstract: The extant literature demonstrates the importance of stock return predictability for portfolio allocation. The usefulness of incorporating return predictability into portfolio decisions is most evident for Bayesian investors who build their portfolios based on their prior beliefs. I show that the magnitude of economic significance of stock return predictability largely depends on the choice of prior beliefs. An investor could suffer substantial utility loss when he delegates portfolio management to a manager with a different belief about stock return predictability. The consideration of Bayesian prior robustness in portfolio analysis can be as important as return predictability itself.
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Holdings
Item type Current library Call number Vol info Status Notes Date due Barcode
Journal Article Journal Article Main Library - Special Collections HD31 AUS (Browse shelf(Opens below)) Vol. 39, no.1 (pages 35-46) Not for loan For in house use only

The extant literature demonstrates the importance of stock return predictability for portfolio allocation. The usefulness of incorporating return predictability into portfolio decisions is most evident for Bayesian investors who build their portfolios based on their prior beliefs. I show that the magnitude of economic significance of stock return predictability largely depends on the choice of prior beliefs. An investor could suffer substantial utility loss when he delegates portfolio management to a manager with a different belief about stock return predictability. The consideration of Bayesian prior robustness in portfolio analysis can be as important as return predictability itself.

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