Join us for the final Spring 2021 Distinguished Lecture: a presentation by Antoinette Schoar, Stewart C. Myers-Horn Family Professor of Finance and Entrepreneurship at the Sloan School of Management, Massachusetts Institute of Technology.
The authors show with intuitive discussion followed by a novel simulation study that applications of the Grinold (1989) "Fundamental Law" theory for optimized portfolio design are often unreliable and self-defeating.
The major problem with mean variance optimization is its tendency to maximize the effects of errors in the input assumptions. Unconstrained mean variance optimization can yield results that are inferior to those of simple equal-weighting schemes.
This paper explores the relationship between the geometric mean and terminal wealth distribution.