The Impact of Estimation Risk Methodologies on the Performance of Global Portfolios

The objective of this study is to determine whether the measurement approach to estimating the return and risk characteristics of an asset would have an impact on the performance of a global/Pacific Basin portfolio constructed through a widely accepted asset allocation model. This study applies four asset return and risk measurement approaches to address the following questions: Can portfolio managers improve their performance by varying their approach to measuring the return and risk characteristics of financial assets? Could one approach result in superior performance under some market conditions but not others? If so, is superior performance predictable? The results of our research indicate that during our test periods there were dramatic differences in the asset allocations in the optimal portfolios and in the performance of these portfolios. These results provide important insights for international portfolio managers.