Efficient Frontier and Resampled Efficient Frontier

[RoccoLee]

Resampled efficient froniter will be above or below efficient frontier?
Why?

 

[S2000magician]

Probably above.
Because the methodology will include simulated assets with higher returns and lower volatilities of returns than the historical values used in the efficient frontier.

 

[MrSmart]

The way I understand it is neither.
It is just another way of constructing an efficent frontier. Both have their pros and cons.

 

[cpk123]

I believe since a Resampled Efficient frontier comes from averaging various other efficient frontiers (based on different starting point assumptions) it would lie BELOW the other efficent frontiers.
See Problem 10 A and 10 B in the text in the EOC on Asset Allocation…

Quote:
“An efficient frontier reflecting the true return parameters must lie above the resampled efficient frontier. Resampled efficiency addresses estimation error by averaging portfolio weights across different simula- tions but cannot completely remove its impact.”

 

[MrSmart]

cpk123 wrote:
I believe since a Resampled Efficient frontier comes from averaging various other efficient frontiers (based on different starting point assumptions) it would lie BELOW the other efficent frontiers.
See Problem 10 A and 10 B in the text in the EOC on Asset Allocation…

Quote:
“An efficient frontier reflecting the true return parameters must lie above the resampled efficient frontier. Resampled efficiency addresses estimation error by averaging portfolio weights across different simula- tions but cannot completely remove its impact.”

I don’t think the question was addressing the true efficent frontier.
What I understood was that it compared the resampled to the MVO frontier.

 

[cpk123]

When they talk Efficient frontier - it means MVO efficient. I do not think there is any other kind.
And this quote is from the solution to the question…. I am not writing this from memory (mine is truly bad).

 

[MrSmart]

cpk123 wrote:
When they talk Efficient frontier - it means MVO efficient. I do not think there is any other kind.
And this quote is from the solution to the question…. I am not writing this from memory (mine is truly bad).

The true efficent frontier is a hypothetical FR. The MVO is the one estimated at a point in time/
The TEF is always above any other frontier.