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

Zhidong Bai; Huixia Liu; Wing-Keung Wong

doi:10.3233/RDA-2008-0004

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 journal › Journal article › peer-review

38 Citations (Scopus)

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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 language	English
Pages (from-to)	35-42
Number of pages	8
Journal	Risk and Decision Analysis
Volume	1
Issue number	1
DOIs	https://doi.org/10.3233/RDA-2008-0004
Publication status	Published - Mar 2009

Scopus Subject Areas

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

User-Defined Keywords

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

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10.3233/RDA-2008-0004

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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.",

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AB - 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.

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

Abstract

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