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Econometrical analysis of the sample efficient frontier

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  • Taras Bodnar
  • Wolfgang Schmid
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    Abstract

    The efficient frontier is a parabola in the mean-variance space which is uniquely determined by three characteristics. Assuming that the portfolio asset returns are independent and multivariate normally distributed, we derive tests and confidence sets for all possible arrangements of these characteristics. Note that all of our results are based on the exact distributions for a finite sample size. Moreover, we determine a confidence region of the whole efficient frontier in the mean-variance space. It is shown that this set is bordered by five parabolas.

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    Bibliographic Info

    Article provided by Taylor & Francis Journals in its journal The European Journal of Finance.

    Volume (Year): 15 (2009)
    Issue (Month): 3 ()
    Pages: 317-335

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    Handle: RePEc:taf:eurjfi:v:15:y:2009:i:3:p:317-335

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    Related research

    Keywords: asset allocation; efficient frontier; portfolio analysis; mean-variance portfolio; parameter uncertainty; interval estimation;

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    Cited by:
    1. Bodnar, Taras & Parolya, Nestor & Schmid, Wolfgang, 2013. "On the equivalence of quadratic optimization problems commonly used in portfolio theory," European Journal of Operational Research, Elsevier, vol. 229(3), pages 637-644.
    2. Taras Bodnar & Wolfgang Schmid & Taras Zabolotskyy, 2013. "Asymptotic behavior of the estimated weights and of the estimated performance measures of the minimum VaR and the minimum CVaR optimal portfolios for dependent data," Metrika, Springer, vol. 76(8), pages 1105-1134, November.
    3. Taras Bodnar & Nestor Parolya & Wolfgang Schmid, 2014. "Estimation of the Global Minimum Variance Portfolio in High Dimensions," Papers 1406.0437, arXiv.org.
    4. Olha Bodnar & Taras Bodnar, 2009. "Statistical inference procedure for the mean–variance efficient frontier with estimated parameters," AStA Advances in Statistical Analysis, Springer, vol. 93(3), pages 295-306, September.

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