Analysts' dividend forecasts, portfolio selection, and market risk premia

In: IF Working Paper Series, Band FW25V2/07

Abstract

"The most relevant practical impediment to an application of the Markowitz portfolio selection
approach is the problem of estimating return moments, in particular return expectations. We analyze
the consequences of using return estimates implied by analysts' dividend forecasts under the explicit
notion of taxes and non-flat term structures of interest rates and achieve quite good performance results.
As a by-product, these results cast some doubt upon the adequacy of estimating market risk
premia with implied returns, because estimation techniques with good performance results are hardly
suited to describe market expectations." [author's abstract]