Investing in Mixed Asset Portfolios: the Ex-Post Performance

by Carolina Fugazza, Massimo Guidolin and Giovanna Nicodano; WP CeRP 69/07




We calculate the ex-post portfolio performance for an investor who diversifies among stocks, bonds, REITS and cash. Simulations are performed for two alternative asset allocation frameworks – classical and Bayesian – and for scenarios involving two different samples and six different investment horizons. Interestingly, the ex-post welfare cost of restricting portfolio choices to traditional financial assets only is found to be positive in all scenarios for a Bayesian investor. On the contrary, substitution of E-REITS for stocks in optimal portfolios turns out to reduce ex-post portfolio performance over the nineties for a Classical investor.


JEL Classification Codes: G11, L85.

Keywords: optimal asset allocation, real estate, parameter uncertainty, out-of-sample performance.


November 2007


WP_69.pdf (PDF document — 535 KB)