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What Will the Likely Range of My Wealth Be?
Raymond Kan and Guofu Zhou
Financial Analysts Journal
Vol. 65, No. 4 (Jul. - Aug., 2009), pp. 68-77
Published by: CFA Institute
Stable URL: http://www.jstor.org/stable/40390197
Page Count: 10
You can always find the topics here!Topics: Unbiased estimators, Estimation bias, Statistical median, Statistical estimation, Estimators, Investment horizon, Investors, Probability forecasts, Financial investments, Statistical variance
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The median is often a better measure than the mean in evaluating a portfolio's long-term value. The standard plug-in estimate of the median, however, is too optimistic. It has a substantial upward bias that can easily exceed a factor of 2. This article provides an unbiased forecast of the median of a portfolio's long-term value. It also provides an unbiased forecast of an arbitrary percentile of a portfolio's long-term value distribution, which enables the construction of the likely range of a portfolio's long-term value for any given confidence level. The article offers an unbiased forecast of the probability of a portfolio's long-term value falling within a given interval. The article's unbiased estimators give a more accurate assessment of a portfolio's long-term value than do traditional estimators and are useful for long-term planning and investment.
Financial Analysts Journal © 2009 CFA Institute