What does this research mean for the field?

The Politis and Romano (1994) stationary bootstrap method produces the most precise estimates for Maximum Drawdown (MDD) compared to benchmark simulation methods, which helps avoid costly investment errors in portfolio construction. Novelty: ClaimNovelty.INCREMENTAL. Consensus alignment: ConsensusAlignment.NEUTRAL.

What question did this study set out to answer?

Compare the performance of various bootstrap simulation methods for estimating maximum drawdown distributions and quantify the economic costs of biased risk estimates.

September 14, 2026The Journal of Portfolio Management

Bootstrapping and Bias: The Economic Costs of Misjudging Downside Risk

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Authors

HDHubert DichtlUniversität Hamburg WDWolfgang DrobetzUniversität Hamburg TOTizian OttoBloomberg (United States)

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Implication

Simulation analysis demonstrates stationary bootstrapping produces the most precise maximum drawdown estimates in asset portfolios, highlighting lower financial losses from risk miscalculation.

Key Points

Compare the performance of various bootstrap simulation methods for estimating maximum drawdown distributions and quantify the economic costs of biased risk estimates.
Evaluated multiple bootstrap simulation approaches against benchmarks using return series from global stock and bond portfolio allocations.
Quantified the economic costs associated with biased maximum drawdown estimates across three realistic decision-making scenarios.
The Politis and Romano (1994) stationary bootstrap generated the most precise estimates for the full distribution of maximum drawdown compared to benchmarks.
Employing stationary bootstrapping mitigated significant economic costs caused by biased risk estimation during portfolio construction and dynamic risk-control execution.

Cite This Study

Dichtl et al. (2026) studied this question.

synapsesocial.com/papers/6aa7b3ee0926e14a848b339c https://doi.org/10.3905/jpm.2026.063

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Implication

Simulation analysis demonstrates stationary bootstrapping produces the most precise maximum drawdown estimates in asset portfolios, highlighting lower financial losses from risk miscalculation.

Bootstrapping and Bias: The Economic Costs of Misjudging Downside Risk

Discussion

Member takes

Implication

Key Points

Cite This Study

Bootstrapping and Bias: The Economic Costs of Misjudging Downside Risk

Discussion

Member takes

Implication

Key Points

Cite This Study

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