Practical Improvements to Mean-Variance Optimization for Multi-Asset Class Portfolios

Round 1

Reviewer 1 Report

Comments and Suggestions for Authors

Please see the attached file.

Comments for author File: Comments.pdf

Author Response

Thank you very much for your review and ideas for improvement. Please see below my replies to specific comments:

 

1. I significantly increased relevant references cited in the paper, from 13 to 20
2. I have noted value-add in last paragraph of Introduction section
3. I changed all first-person pronouns from singular to plural
4. Final section has been renamed to Discussion and Concluding Remarks. I also added recommendation on method selection
5. I have removed “Financial Markets” as keyword
6. I believe I have addressed this by #1-5 above
7. I have added titles for Appendix tables

Reviewer 2 Report

Comments and Suggestions for Authors

The paper titled “Practical improvements to mean-variance optimization for multi-asset class portfolios” is an interesting one. The study focusses on the importance of MVO and how the method can be adjusted.

The paper is comprehensive, and it is recommended that discussion of the Appendix be included in the main part of the paper, and synthesized accordingly. This is because the information presented in the Appendix are useful to readers as well, and will be better if included as part of the main content.

In tables 1 and 2, please include Sharpe ratio, mean return and standard deviation, as table notes.

In the Materials and Method section, the paper provides different values of theta, and argue the “value of theta below 0.80 ill typically produce an equal-weighted portfolio.” Why is this the case? Is this an empirical finding from earlier studies or an established fact? Please provide explanation and references for the benefit of readers.

In Tables 3 and 4, also provide mean return, standard deviation, and Sharpe ratio, as table note.

While the results are interesting, there are some obvious limitations of the study. It must be noted that the outcomes can be market and asset specific, hence as a limitation it should be noted that the method shown in the study be carefully executed in different settings – for example, in an emerging market economy, small markets etc. Another point to highlight is that investors who wish to maximize return, whilst taking additional risks should also consider the downside risk, which this study does not discuss. Also, the study does not necessary give a financial advice, so just to err on the side of caution, I would suggest that the author note this point, noting that the past performance of assets does not guarantee similar or higher returns in the future.

 

Author Response

Thank you very much for your review and ideas for improvement. Please see below my replies to specific comments:

 

1. Tables 1, 2, 3, and 4 now have expected return, volatility and Sharpe Ratio in table notes
2. I have re-written the sentence about theta values of less than 0.8. The point is that theta of 1.00 equals MVO, while progressively lower values of theta converge to the equal-weight portfolio. 
3. I have added conditions and words of caution regarding the paper’s conclusions to the final section