TY - JOUR T1 - Enhanced Mean–Variance Portfolios:<br/> <em>A Controlled Integration of Quantitative Predictors</em> JF - The Journal of Portfolio Management SP - 28 LP - 41 DO - 10.3905/jpm.2014.40.4.028 VL - 40 IS - 4 AU - Lars Kaiser AU - Marco J. Menichetti AU - Aron Veress Y1 - 2014/07/31 UR - https://pm-research.com/content/40/4/28.abstract N2 - The intuitiveness and practicality of mean–variance portfolios largely depend on the accuracy of moment estimates, which are subject to large estimation errors and are conditional on time. The authors propose a model that accounts for factor dynamics in a Bayesian setting, in which they endogenously derive the effect of estimation accuracy on the posterior distribution from a linear predictive regression model. By doing so, they capture upside return potential for periods of high factor-explained variance, while constraining downside risk for periods of low predictive quality. Results are robust in a simulation and an empirical setting.TOPICS: Portfolio construction, statistical methods, performance measurement ER -