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A Reevaluation of Alternative Portfolio Selection Models Applied to Common Stocks

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  • Alexander, Gordon J.

Abstract

Two methods for deriving efficient sets involve either the Markowitz [3] approach, where every security can be viewed as being related to an index unique to itself, or the Sharpe [4] single-index model, where every security is related to the same index. Given the extreme differences between these models, Cohen and Pogue [1] developed two intermediate models. They found that the efficient set derived from the Sharpe single-index model came closer to approximating the Markowitz model's efficient set than their models when empirically tested on a sample of common stocks. Subsequently a similar test was performed by Wallingford [6] which yielded contradictory conclusions.

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  • Alexander, Gordon J., 1978. "A Reevaluation of Alternative Portfolio Selection Models Applied to Common Stocks," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 13(1), pages 71-78, March.
    • Handle: RePEc:cup:jfinqa:v:13:y:1978:i:01:p:71-78_00
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    Cited by:

    1. Louis K.C. Chan & Jason Karceski & Josef Lakonishok, 1999. "On Portfolio Optimization: Forecasting Covariances and Choosing the Risk Model," NBER Working Papers 7039, National Bureau of Economic Research, Inc.
    2. Ravi Jagannathan & Tongshu Ma, 2003. "Risk Reduction in Large Portfolios: Why Imposing the Wrong Constraints Helps," Journal of Finance, American Finance Association, vol. 58(4), pages 1651-1683, August.

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