Why Is It so Hard to Estimate Expected Returns?
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چکیده
A key part of experiment design is determining how much data to collect. When the data comes in the form of a timeseries, the sample size is expressed both by the count N of the observations and the duration T of the historical period over which observations were made. For forecasting the drift of an asset price process with continuous sample paths, it turns out that the duration is key. I demonstrate that the standard error of any unbiased estimator of the price of risk is bounded below by 1/ √ T , which I believe this is higher than many practitioners realize.
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