Hi all, I am working on portfolio optimizations (from portfolio theory) and I was wondering if I should use nominal or real price data? Economists tend to use real prices for time series analysis but I don't recall seeing any academic work on portfolio optimization that has used real prices... Thanks!
Hello Thales,
From a general perspective, I would say that using real prices avoids that you have the very typical critic of not taking inflation into account in your research... So I would go for real prices. Beside, have you considered carrying out your work/research with both nominal as well as real prices and see what happens in terms of results? Personally, this is what I would go for.
Real share prices will be a bit difficult to get I suppose!
what type of deflator you will use? Probably CPI but CPI is not good tO
use.
data for nominal individual share prices Are easy to get.
Now if you use nominal prices and nominal discount rates, you are expected to have the same results as if you use real prices and real discount rates
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