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Simple Rules for Optimal Portfolio Selection: The Multi Group Case

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  • Elton, Edwin J.
  • Gruber, Martin J.
  • Padberg, Manfred W.

Abstract

The inception of modern portfolio theory dates from Markowitz's pioneering article [7] and subsequent book [8]. Yet despite the early development of a full theory of portfolio management, this theory has rarely been implemented. One problem arises from the difficulty in generating inputs to the general portfolio model. Index models and simple structures for correlation relationships, which go a long way towards solving this problem, have been developed. Yet the time and cost of solving actual portfolio problems (involving the solution of a quadratic programming problem) and more importantly the difficulty of educating portfolio managers to relate to risk return trade-offs in terms of covariances has virtually brought the application of portfolio theory to a halt.

Suggested Citation

  • Elton, Edwin J. & Gruber, Martin J. & Padberg, Manfred W., 1977. "Simple Rules for Optimal Portfolio Selection: The Multi Group Case," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 12(3), pages 329-345, September.
    • Handle: RePEc:cup:jfinqa:v:12:y:1977:i:03:p:329-345_02
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    Cited by:

    1. Maria Teresa Medeiros Garcia & Daniel Alexandre Bourdain Santos Borrego, 2018. "Calculating the Efficient Frontier for the Portuguese Stock Market," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 24(4), pages 339-349, November.
    2. Maen F. Nsour & Ph.D. & Samer AM Al-Rjoub & Ph.D., 2022. "How Would Investing in Equities Have Affected the Social Security Investment Fund in an Emerging Market? Can Governance Help?," International Journal of Economics & Business Administration (IJEBA), International Journal of Economics & Business Administration (IJEBA), vol. 0(4), pages 55-72.
    3. Elton, Edwin J. & Gruber, Martin J., 1997. "Modern portfolio theory, 1950 to date," Journal of Banking & Finance, Elsevier, vol. 21(11-12), pages 1743-1759, December.
    4. Richard C. Burgess & Roger P. Bey, 1988. "Optimal Portfolios: Markowitz Full Covariance Versus Simple Selection Rules," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 11(2), pages 153-163, June.
    5. Hyeong Kyu Choi, 2018. "Stock Price Correlation Coefficient Prediction with ARIMA-LSTM Hybrid Model," Papers 1808.01560, arXiv.org, revised Oct 2018.
    6. Ameer Tamoor Khan & Xinwei Cao & Shuai Li, 2023. "Using Quadratic Interpolated Beetle Antennae Search for Higher Dimensional Portfolio Selection Under Cardinality Constraints," Computational Economics, Springer;Society for Computational Economics, vol. 62(4), pages 1413-1435, December.
    7. Kwan, Clarence C. Y., 1995. "Optimal portfolio selection under institutional procedures for short selling," Journal of Banking & Finance, Elsevier, vol. 19(5), pages 871-889, August.
    8. Teresa Garcia & Daniel Borrego, 2017. "Markowitz Efficient Frontier And Capital Market Line – Evidence From The Portuguese Stock Market," Portuguese Journal of Management Studies, ISEG, Universidade de Lisboa, vol. 22(1), pages 3-23.
    9. Ma, Chenghu & Hu, Jianqiang & Xu, Yifan, 2018. "Margins on short sales and equilibrium price indeterminacy," Journal of Mathematical Economics, Elsevier, vol. 74(C), pages 79-92.
    10. Heuts, R.M.J., 1978. "Portfolio models and time series analysis," Other publications TiSEM 48458631-edc8-42e9-8359-4, Tilburg University, School of Economics and Management.
    11. Al Janabi, Mazin A.M., 2014. "Optimal and investable portfolios: An empirical analysis with scenario optimization algorithms under crisis market prospects," Economic Modelling, Elsevier, vol. 40(C), pages 369-381.
    12. Sankaran, Jayaram K. & Patil, Ajay A., 1999. "On the optimal selection of portfolios under limited diversification," Journal of Banking & Finance, Elsevier, vol. 23(11), pages 1655-1666, November.

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