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Minimum-variance portfolio optimization: an asset pricing model approach

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  • Yao Han
  • James W. Kolari
  • Wei Liu

Abstract

This paper employs novel asset pricing model methods to construct the global minimum-variance portfolio G. Out-of-sample analyses of U.S. stock returns show that optimized G portfolios have relatively higher expected returns, lower variance, and higher Sharpe ratios than those based on traditional variance-covariance matrix estimation methods. Robustness checks confirm these findings and show that our G portfolio has lower variance than currently available minimum-variance exchange traded funds (ETFs). We conclude that asset pricing models can be used to build high performing G portfolios. Implications to portfolio management are discussed.

Suggested Citation

  • Yao Han & James W. Kolari & Wei Liu, 2025. "Minimum-variance portfolio optimization: an asset pricing model approach," Applied Economics, Taylor & Francis Journals, vol. 57(57), pages 9823-9836, December.
    • Handle: RePEc:taf:applec:v:57:y:2025:i:57:p:9823-9836
    DOI: 10.1080/00036846.2024.2423903
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