Abstract
Practitioners have long struggled with the sampling error inherent in estimating means, variances and co-variances of returns used in mean-variance optimizers. Accordingly, it has been argued that the efficient frontier is really an efficient fuzzy region of groups of statistically equivalent portfolios. The implication of this view is that it can be difficult to distinguish between alternative strategic asset allocation benchmarks and to determine whether or not rebalancing portfolios or making tactical asset allocation tilts is statistically meaningful. This paper develops more powerful tests to show that small changes in asset allocation weights are often statistically significant, challenging those views.
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