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Review of Finance Advance Access published online on December 25, 2008
Review of Finance, doi:10.1093/rof/rfn028
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© The Author 2008. Published by Oxford University Press on behalf of the European Finance Association. All rights reserved. For Permissions, please email: journals.permissions@oxfordjournals.org

Robust Portfolio Optimisation with Multiple Experts*

Frank Lutgens1 and Peter C. Schotman2

1 Maastricht University
2 NETSPAR

We consider mean-variance portfolio choice of a robust investor. The investor receives advice from J experts, each with a different prior for expected returns and risk, and follows a min-max portfolio strategy. The robust investor endogenously combines the experts' estimates. When experts agree on the main return generating factors, the investor relies on the advice of the expert with the strongest prior. Dispersed advice leads to averaging of the alternative estimates. The robust investor is likely to outperform alternative strategies. The theoretical analysis is supported by numerical simulations for the 25 Fama-French portfolios and for 81 European country and value portfolios.

Key Words: C11 • C44 • D80

* An early version of this paper was presented at the London Business School, the Swedish Institute for Financial Research (Stockholm), the Econometric Study Group (London), ABP Investments and at the Inquire Europe conference in Hamburg. We thank Mark Salmon for an insightful discussion of our results. We thank Inquire Europe for their financial support of this research. An anonymous referee provided valuable suggestions on the presentation the results. All errors are of course our own.


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