What is exactly is estimation bias? Is this just error in calculating the expected return in asset allocations? Thx again!
humm can you tell us in reference of what page is this ?
first thought is, since it includes the word bias, not only is it an error, but it is biased in a certain direction
so maybe people being biased to being over confident, not sure till you tell me where this came from
is this from the inputs for monte carlo simulation?
This information is in Study Session 8 on Asset Allocation
A limitation of the mean-variance approach is that its recommended asset allocations are highly sensitive to small changes in inputs and, therefore, to estimation error.
In its impact on the results of a mean-variance approach to asset allocation, estimation error in expected returns has been estimated to be roughly 10x as important as estimation error in variances and 20x as important as estimation error in covariances. Thus, the most important input in MVO is expected return.
Re-sampling the efficient frontier addresses estimation error by averaging the weights across different simulations but cannot completely remove its impact.
estimation error is just that , error in estimating the expected return. The realized return may be very different from the estimate or expected return , and this will lead to a suboptimal portfolio in hindsight