On the Markowitz mean-variance analysis of self-financing portfolios

Zhidong Bai, Huixia Liu, Wing Keung WONG*

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

35 Citations (Scopus)

Abstract

This paper extends the work of Markowitz (1952), Korkie and Turtle (2002) and others by first proving that the traditional estimate for the optimal return of self-financing portfolios always over-estimates from its theoretic value. To circumvent the problem, we develop a bootstrap estimate for the optimal return of self-financing portfolios and prove that this estimate is consistent with its counterpart parameter. We further demonstrate the superiority of our proposed estimate over the traditional estimate by simulation.

Original languageEnglish
Pages (from-to)35-42
Number of pages8
JournalRisk and Decision Analysis
Volume1
Issue number1
DOIs
Publication statusPublished - 2009

Scopus Subject Areas

  • Statistics and Probability
  • Finance
  • Economics and Econometrics
  • Statistics, Probability and Uncertainty

User-Defined Keywords

  • bootstrap method
  • large random matrix
  • mean-variance optimization
  • Optimal portfolio allocation
  • self-financing portfolio

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