Estimation Risk Modeling in Optimal Portfolio Selection: An Empirical Study from Emerging Markets

Table 2

Portfolio performance of alternative estimation methods: Sharpe’s Ratio.

Strategy	Monthly excess portfolio return
	Exante			Expost
	Total period (TP)	Subperiod 1 (SP1)	Subperiod 2 (SP2)	Total period (TP)	Subperiod 1 (SP1)	Subperiod 2 (SP2)
Mean-Variance	1.84%	2.74%	1.26%	−5.43%	−6.38%	−1.46%
AB	−0.02%	−0.47%	−0.44%	−2.31%	1.50%	−2.47%
REF	2.04%	2.32%	1.21%	−2.84%	3.01%	−1.44%
CAPM	−0.02%	−0.36%	0.54%	−2.31%	1.50%	−2.80%
SIM	1.94%	2.42%	1.27%	−3.44%	−4.03%	1.65%
BSIM	2.39%	2.67%	2.70%	−1.07%	3.08%	−3.21%
Strategy	Monthly excess portfolio risk
	Exante			Expost
	Total period (TP)	Subperiod 1 (SP1)	Subperiod 2 (SP2)	Total period (TP)	Subperiod 1 (SP1)	Subperiod 2 (SP2)
Mean-Variance	8.84%	10.56%	4.36%	0.93%	1.37%	0.20%
AB	2.75%	3.39%	2.01%	2.75%	7.73%	3.37%
REF	0.29%	0.25%	0.19%	1.05%	0.87%	1.38%
CAPM	2.75%	3.39%	3.60%	2.75%	7.73%	3.37%
SIM	9.22%	10.85%	5.96%	9.21%	10.77%	5.26%
BSIM	7.59%	9.22%	5.27%	7.56%	9.18%	5.26%
Strategy	Sharpe’s Ratio
	Exante				Expost
	Total period (TP)	Subperiod 1 (SP1)	Subperiod 2 (SP2)	Total period (TP)	Subperiod 1 (SP1)	Subperiod 2 (SP2)
Mean-Variance	0.1949	0.2189	0.2824	−10.1536	−1.5029	−10.4492
AB	−0.0093	0.2410	0.2038	−1.1015	−1.6834	−0.3573
REF	0.2089	0.2622	0.3830	−0.3681	0.1648	−0.9629
CAPM	−0.0075	−0.1337	0.1974	−1.1015	0.3107	−1.2359
SIM	0.2038	0.2067	0.2113	−0.3573	−0.3198	0.3127^∗
BSIM	0.3147^∗	0.2900^∗	0.5111^∗	−0.1409^∗	0.3357^∗	−0.6091

Note: Ex ante and ex-post-portfolio monthly return and risk are reported. Total sample periods range from January 1995 to December 2008. Two out-of-sample periods are January 1996 and January 2009.
∗denotes the highest Sharpe’s Ratio compared among different portfolio strategies.