Various risk estimation methods have been proposed in response to evidence that risk is changing. We investigate the effect of alternative risk‐estimation methods in the context of asset‐allocation decisions that seek to minimize portfolio risk. The risk measures considered include the traditional fixed‐window method, exponential smoothing, and GARCH. Our findings confirm that the choice of risk measure can make a significant difference to the efficiency of asset‐allocation decisions and therefore to investment outcomes and fund rankings. We find that the traditional fixed‐window method is rarely optimal and that measures that account for volatility clustering are generally preferable.
|Number of pages||15|
|Journal||Journal of Financial Research|
|Publication status||Published - 1999|