Hi, this question pertains to R17 (Asset Allocation) Practice Problem 10 A.
The question offers a mean-variance frontier (“Frontier B”) that reflects perfect knowledge of the return parameters.
It offers another frontier (“Frontier A”) that is superior because for any given level of standard deviation it generates better expected returns.
The question asks whether the superior frontier, A, could be a conventional mean-variance efficient frontier or the the resampled efficient frontier.
My thought was that Frontier A could be either since both those frontiers are using estimated return parameters. Those return parameters could be falsely estimated as too high. Therefore, frontier A would appear higher than frontier B.
The book didn’t agree. If somebody has the patience, could they walk me through? Thanks.
The question offers a mean-variance frontier (“Frontier B”) that reflects perfect knowledge of the return parameters.
It offers another frontier (“Frontier A”) that is superior because for any given level of standard deviation it generates better expected returns.
The question asks whether the superior frontier, A, could be a conventional mean-variance efficient frontier or the the resampled efficient frontier.
My thought was that Frontier A could be either since both those frontiers are using estimated return parameters. Those return parameters could be falsely estimated as too high. Therefore, frontier A would appear higher than frontier B.
The book didn’t agree. If somebody has the patience, could they walk me through? Thanks.