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A Mean–variance analysis of arbitrage portfolios

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  • Fang, Shuhong

Abstract

Based on the careful analysis of the definition of arbitrage portfolio and its return, the author presents a mean–variance analysis of the return of arbitrage portfolios, which implies that Korkie and Turtle's results ( B. Korkie, H.J. Turtle, A mean–variance analysis of self-financing portfolios, Manage. Sci. 48 (2002) 427–443) are misleading. A practical example is given to show the difference between the arbitrage portfolio frontier and the usual portfolio frontier.

Suggested Citation

  • Fang, Shuhong, 2007. "A Mean–variance analysis of arbitrage portfolios," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 375(2), pages 625-632.
    • Handle: RePEc:eee:phsmap:v:375:y:2007:i:2:p:625-632
    DOI: 10.1016/j.physa.2006.10.034
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    References listed on IDEAS

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    1. Fung, William & Hsieh, David A., 1999. "A primer on hedge funds," Journal of Empirical Finance, Elsevier, vol. 6(3), pages 309-331, September.
    2. Harry Markowitz, 1952. "Portfolio Selection," Journal of Finance, American Finance Association, vol. 7(1), pages 77-91, March.
    3. Bob Korkie & Harry J. Turtle, 2002. "A Mean-Variance Analysis of Self-Financing Portfolios," Management Science, INFORMS, vol. 48(3), pages 427-443, March.
    4. William F. Sharpe, 1964. "Capital Asset Prices: A Theory Of Market Equilibrium Under Conditions Of Risk," Journal of Finance, American Finance Association, vol. 19(3), pages 425-442, September.
    5. Merton, Robert C., 1972. "An Analytic Derivation of the Efficient Portfolio Frontier," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 7(4), pages 1851-1872, September.
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    Cited by:

    1. Chen, Wei & Zhang, Wei-Guo, 2010. "The admissible portfolio selection problem with transaction costs and an improved PSO algorithm," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 389(10), pages 2070-2076.

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