PT  - JOURNAL ARTICLE
AU  - Robert A Ferguson
AU  - Dean Leistikow
AU  - Susana Yu
TI  - Arithmetic and Continuous Return Mean-Variance Efficient Frontiers
AID  - 10.3905/JOI.2009.18.3.062
DP  - 2009 Aug 31
TA  - The Journal of Investing
PG  - 62--69
VI  - 18
IP  - 3
4099  - https://pm-research.com/content/18/3/62.short
4100  - https://pm-research.com/content/18/3/62.full
AB  - The arithmetic mean-variance frontier shows that taking more risk is always rewarded with higher expected arithmetic return. This article shows that there is a danger from being too aggressive that is not reflected in the arithmetic return mean-variance frontier because expected arithmetic return is a poor indicator of long-term arithmetic return. Since long-term arithmetic return is equivalent to long-term average continuous return, the relevant mean-variance frontier replaces expected arithmetic return with expected continuous return. The article shows that, for the continuous return mean-variance frontier, expected return initially rises, then declines and becomes negative as risk increases.TOPICS: Factors, risk premia, portfolio theory, portfolio construction