Compass Research MVPO
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An Empirical Test of Mean-Variance Optimization Randall L. Dos er , FSA The past 15 years have seen Markowitz Mean- Variance Optimization grow from an obscure academic argument for diversification to a ubiquitous e li xir to cure what ails the portfolio of every individual investor. This study tests how using Mean-Variance Optimization to reposition a three-asset portfolio on an annual basis would have faired against various fixed allocations with equivalent expected risk. Optimizations were performed using six different methods to derive inputs and over three different look- back periods. Results indication that most input derivations methods cause the “ :optimiz ed” portfolios to underperform their fixed allocati ons counterparts.
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