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Self-Averaging Property of Minimal Investment Risk of Mean-Variance Model

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  • Takashi Shinzato

Abstract

In portfolio optimization problems, the minimum expected investment risk is not always smaller than the expected minimal investment risk. That is, using a well-known approach from operations research, it is possible to derive a strategy that minimizes the expected investment risk, but this strategy does not always result in the best rate of return on assets. Prior to making investment decisions, it is important to an investor to know the potential minimal investment risk (or the expected minimal investment risk) and to determine the strategy that will maximize the return on assets. We use the self-averaging property to analyze the potential minimal investment risk and the concentrated investment level for the strategy that gives the best rate of return. We compare the results from our method with the results obtained by the operations research approach and with those obtained by a numerical simulation using the optimal portfolio. The results of our method and the numerical simulation are in agreement, but they differ from that of the operations research approach.

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  • Takashi Shinzato, 2015. "Self-Averaging Property of Minimal Investment Risk of Mean-Variance Model," PLOS ONE, Public Library of Science, vol. 10(7), pages 1-24, July.
    • Handle: RePEc:plo:pone00:0133846
    DOI: 10.1371/journal.pone.0133846
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    References listed on IDEAS

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    5. Takashi Shinzato & Muneki Yasuda, 2010. "Belief Propagation Algorithm for Portfolio Optimization Problems," Papers 1008.3746, arXiv.org, revised Sep 2010.
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    Cited by:

    1. Aekkachai NITTAYAGASETWAT & Jiroj BURANASIRI, 2016. "Performance Comparison Between Real Estate Securities and Real Estate Investment Using Stochastic Dominance and Mean-Variance Analysis," International Conference on Economic Sciences and Business Administration, Spiru Haret University, vol. 3(1), pages 208-219, October.
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    3. Takashi Shinzato & Muneki Yasuda, 2015. "Belief Propagation Algorithm for Portfolio Optimization Problems," PLOS ONE, Public Library of Science, vol. 10(8), pages 1-10, August.

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