This file is part of IDEAS, which uses RePEc data


[ Papers | Articles | Software | Books | Chapters | Authors | Institutions | JEL Classification | NEP reports | Search | New papers by email | Author registration | Rankings | Volunteers | FAQ | Blog | Help! ]

Portfolio Optimization with Many Assets: The Importance of Short-Selling

Author info | Abstract | Publisher info | Download info | Related research | Statistics
Author Info
Moshe Levy (School of Business Administration; The Hebrew University of Jerusalem)
Yaacov Ritov (Department of Statistics; The Hebrew University of Jerusalem)
Abstract

We investigate the properties of mean-variance efficient portfolios when the number of assets is large. We show analytically and empirically that the proportion of assets held short converges to 50% as the number of assets grows, and the investment proportions are extreme, with several assets held in large positions. The cost of the no-shortselling constraint increases dramatically with the number of assets. For about 100 assets the Sharpe ratio can be more than doubled with the removal of this constraint. These results have profound implications for the theoretical validity of the CAPM, and for policy regarding short-selling limitations.

Download Info
To download:

If you experience problems downloading a file, check if you have the proper application to view it first. Information about this may be contained in the File-Format links below. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://repositories.cdlib.org/cgi/viewcontent.cgi?article=1006&context=anderson/fin
File Format: application/pdf
File Function:
Download Restriction: no

Publisher Info
Paper provided by Anderson Graduate School of Management, UCLA in its series University of California at Los Angeles, Anderson Graduate School of Management with number 1006.

Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Length:
Date of creation: 01 May 2001
Date of revision:
Handle: RePEc:cdl:anderf:1006

Note: oai:cdlib1:anderson/fin-1006
Contact details of provider:
Postal: 110 Westwood Plaza, Los Angeles, CA. 90095
Web page: http://repositories.cdlib.org/anderson/fin/
More information through EDIRC

For technical questions regarding this item, or to correct its listing, contact: (Christopher F. Baum).

Related research
Keywords: portfolio optimization; short-selling; CAPM.;

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. Frost, Peter A. & Savarino, James E., 1986. "An Empirical Bayes Approach to Efficient Portfolio Selection," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 21(03), pages 293-305, September. [Downloadable!]
  2. Fama, Eugene F & French, Kenneth R, 1992. " The Cross-Section of Expected Stock Returns," Journal of Finance, American Finance Association, vol. 47(2), pages 427-65, June. [Downloadable!] (restricted)
  3. Ravi Jagannathan & Zhenyu Wang, 1993. "The CAPM is alive and well," Staff Report 165, Federal Reserve Bank of Minneapolis. [Downloadable!]
    Other versions:
  4. Roll, Richard & Ross, Stephen A., 1977. "Comments on qualitative results for investment proportions," Journal of Financial Economics, Elsevier, vol. 5(2), pages 265-268, November. [Downloadable!] (restricted)
  5. Shlomo Benartzi & Richard H. Thaler, 2001. "Naive Diversification Strategies in Defined Contribution Saving Plans," American Economic Review, American Economic Association, vol. 91(1), pages 79-98, March. [Downloadable!] (restricted)
  6. Pulley, Lawrence B., 1981. "A General Mean-Variance Approximation to Expected Utility for Short Holding Periods," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 16(03), pages 361-373, September. [Downloadable!]
  7. Francis A. Longstaff, 2001. "The Relative Valuation of Caps and Swaptions: Theory and Empirical Evidence," Journal of Finance, American Finance Association, vol. 56(6), pages 2067-2109, December. [Downloadable!] (restricted)
  8. Kandel, Shmuel, 1984. " On the Exclusion of Assets from Tests of the Mean Variance Efficiency of the Market Portfolio," Journal of Finance, American Finance Association, vol. 39(1), pages 63-75, March. [Downloadable!] (restricted)
  9. Levy, Haim, 1973. "The Demand for Assets Under Conditions of Risk," Journal of Finance, American Finance Association, vol. 28(1), pages 79-96, March. [Downloadable!] (restricted)
  10. Elton, Edwin J & Gruber, Martin J & Padberg, Manfred W, 1976. "Simple Criteria for Optimal Portfolio Selection," Journal of Finance, American Finance Association, vol. 31(5), pages 1341-57, December. [Downloadable!] (restricted)
  11. Levy, Haim, 1983. "The Capital Asset Pricing Model: Theory and Empiricism," Economic Journal, Royal Economic Society, vol. 93(369), pages 145-65, March. [Downloadable!] (restricted)
  12. Sharpe, William F, 1991. " Capital Asset Prices with and without Negative Holdings," Journal of Finance, American Finance Association, vol. 46(2), pages 489-509, June. [Downloadable!] (restricted)
  13. Roll, Richard, 1977. "A critique of the asset pricing theory's tests Part I: On past and potential testability of the theory," Journal of Financial Economics, Elsevier, vol. 4(2), pages 129-176, March. [Downloadable!] (restricted)
  14. Merton, Robert C, 1987. " A Simple Model of Capital Market Equilibrium with Incomplete Information," Journal of Finance, American Finance Association, vol. 42(3), pages 483-510, July. [Downloadable!] (restricted)
    Other versions:
  15. Kwan, Clarence C. Y., 1997. "Portfolio selection under institutional procedures for short selling: Normative and market-equilibrium considerations," Journal of Banking & Finance, Elsevier, vol. 21(3), pages 369-391, March. [Downloadable!] (restricted)
  16. Rudd, Andrew, 1977. "A note on qualitative results for investment proportions," Journal of Financial Economics, Elsevier, vol. 5(2), pages 259-263, November. [Downloadable!] (restricted)
  17. Levy, Haim, 1978. "Equilibrium in an Imperfect Market: A Constraint on the Number of Securities in the Portfolio," American Economic Review, American Economic Association, vol. 68(4), pages 643-58, September. [Downloadable!] (restricted)
  18. Guy V. G. Stevens, 1998. "On the Inverse of the Covariance Matrix in Portfolio Analysis," Journal of Finance, American Finance Association, vol. 53(5), pages 1821-1827, October. [Downloadable!] (restricted)
  19. Black, Fischer, 1972. "Capital Market Equilibrium with Restricted Borrowing," Journal of Business, University of Chicago Press, vol. 45(3), pages 444-55, July. [Downloadable!] (restricted)
  20. Schwert, G William & Seguin, Paul J, 1990. " Heteroskedasticity in Stock Returns," Journal of Finance, American Finance Association, vol. 45(4), pages 1129-55, September. [Downloadable!] (restricted)
    Other versions:
  21. William F. Sharpe, 1965. "Mutual Fund Performance," Journal of Business, University of Chicago Press, vol. 39, pages 119. [Downloadable!]
  22. Kandel, Shmuel & Stambaugh, Robert F, 1995. " Portfolio Inefficiency and the Cross-Section of Expected Returns," Journal of Finance, American Finance Association, vol. 50(1), pages 157-84, March. [Downloadable!] (restricted)
    Other versions:
  23. Kroll, Yoram & Levy, Haim & Markowitz, Harry M, 1984. " Mean-Variance versus Direct Utility Maximization," Journal of Finance, American Finance Association, vol. 39(1), pages 47-61, March. [Downloadable!] (restricted)
Full references

Statistics
Access and download statistics

Did you know? You too can volunteer for RePEc, for example by providing information about publications in your institution.

This page was last updated on 2009-11-19.

This information is provided to you by IDEAS at the Department of Economics, College of Liberal Arts and Sciences, University of Connecticut using RePEc data on a server sponsored by the Society for Economic Dynamics.