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The GUTMANN CENTER FOR PORTFOLIO MANAGEMENT

at the University of Vienna http://www.gutmann-center.at

is pleased to announce the following PUBLIC LECTURE:

Date: October 13th, 2004 (Wednesday), 4.00 p.m. Speaker: Prof. Dr. Raman UPPAL London Business School http://faculty.london.edu/ruppal/

Title: "PORTFOLIO SELECTION WITH PARAMETER AND MODEL UNCERTAINTY"

Abstract: In this paper, we extend the mean-variance portfolio model where expected returns are obtained using maximum likelihood estimation to explicitly account for uncertainty about estimated expected returns. In contrast to the Bayesian approach to estimation error, where there is only a single prior and the investor is neutral to uncertainty, we allow for multiple priors and aversion to uncertainty. The multi-prior model has several attractive features: One, just like the Bayesian model, the multi-prior model is firmly grounded in decision theory; Two, it is flexible enough to allow for uncertainty about expected returns estimated jointly for all assets or different levels of uncertainty about expected returns for different subsets of the assets; Three, we show how in several special cases of the multi-prior model one can obtain closed-form expressions for the optimal portfolio, which can be interpreted as a shrinkage of the mean-variance portfolio towards either he risk-free asset or the minimum variance portfolio. We illustrate how to implement the multi-prior model using both international and domestic data. Our analysis suggests that allowing for parameter uncertainty reduces the fluctuation of portfolio weights over time and, for the data set considered, improves substantially the out-of sample performance.

Location: Bank Gutmann AG (http://www.gutmann.at), Schwarzenbergplatz 16, A - 1010 Vienna, Austria

Participation is free, but REGISTRATION required:

brigitte.juchelka@gutmann.at phone: +43-1-50220-357

Further information:

Dorothea Grimm Administrative Director Gutmann Center for Portfolio Management University of Vienna Bruenner Str. 72 A-1210 Wien Austria phone: +43-1-4277-38186 fax: +43-1-4277-38074 mail: dorothea.grimm@univie.ac.at web: www.gutmann-center.at