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Legal Restrictions on Portfolio Holdings: Some Empirical Results

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Author Info

  • Hlouskova, Jaroslava

    (Department of Economics and Finance, Institute for Advanced Studies)

  • Lee, Gabriel S.

    (Department of Economics and Finance, Institute for Advanced Studies)

Abstract

This article investigates the sensitivity analysis of mean-variance portfolio holdings to changes in the upper bounds. The optimization problem studied in this paper is, thus, constrained by a restriction that no more than certain portion of wealth can be invested in any one security. Our empirical results show that for both risk tolerant as well as for risk averse investors, the performance and expected returns of mean-variance efficient portfolios under the legal restrictions are lower and the variance are higher than the corresponding ones without the restriction.

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File URL: http://www.ihs.ac.at/publications/eco/es-93.pdf
File Function: First version, 2001
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Bibliographic Info

Paper provided by Institute for Advanced Studies in its series Economics Series with number 93.

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Length: 25 pages
Date of creation: Jan 2001
Date of revision:
Handle: RePEc:ihs:ihsesp:93

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Related research

Keywords: Upper bound constraint; Portfolio holdings; Parametric quadratic programming;

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  1. Best, Michael J & Grauer, Robert R, 1985. " Capital Asset Pricing Compatible with Observed Market Value Weights," Journal of Finance, American Finance Association, vol. 40(1), pages 85-103, March.
  2. Green, R.C. & Hollifield, B., 1990. "When Will Mean-Variance Efficient Portfolios Be Well Diversified?," GSIA Working Papers 1990-12, Carnegie Mellon University, Tepper School of Business.
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