Which Portfolio is Better? A Discussion of Several Possible Comparison Criteria

Posted: 14 Jun 2018

See all articles by Henryk Gzyl

Henryk Gzyl

Instituto de Estudios Superiores de Administración (IESA)

Alfredo Ríos

Instituto de Estudios Superiores de Administración (IESA)

Date Written: May 16, 2018

Abstract

During the last few years, there has been an interest in comparing simple or heuristic procedures for portfolio selection, such as the naive, equal weights, portfolio choice, against more "sophisticated" portfolio choices, and in explaining why, in some cases, the heuristic choice seems to outperform the sophisticated choice. We believe that some of these results may be due to the comparison criterion used.

It is the purpose of this note to analyze some ways of comparing the performance of portfolios. We begin by analyzing each criterion proposed on the market line, in which there is only one random return. Several possible comparisons between optimal portfolios and the naive portfolio are possible and easy to establish. Afterwards, we study the case in which there is no risk free asset. In this way, we believe some basic theoretical questions regarding why some portfolios may seem to outperform others can be clarified.

Keywords: portfolio comparisons, naive portfolio, portfolio performance

JEL Classification: G110

Suggested Citation

Gzyl, Henryk and Ríos, Alfredo, Which Portfolio is Better? A Discussion of Several Possible Comparison Criteria (May 16, 2018). Available at SSRN: https://ssrn.com/abstract=3179577 or http://dx.doi.org/10.2139/ssrn.3179577

Henryk Gzyl (Contact Author)

Instituto de Estudios Superiores de Administración (IESA) ( email )

Ave, Iesa, San Bernardino
Caracas, 1010
Venezuela

HOME PAGE: http://www.iesa.edu.ve

Alfredo Ríos

Instituto de Estudios Superiores de Administración (IESA) ( email )

C/ Campo Santo de los Mártires, 7
San Bernardo 1010, Caracas, Córdoba 14004
Venezuela

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