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Econometrical analysis of the sample efficient frontier

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  • Taras Bodnar
  • Wolfgang Schmid

Abstract

The efficient frontier is a parabola in the mean-variance space which is uniquely determined by three characteristics. Assuming that the portfolio asset returns are independent and multivariate normally distributed, we derive tests and confidence sets for all possible arrangements of these characteristics. Note that all of our results are based on the exact distributions for a finite sample size. Moreover, we determine a confidence region of the whole efficient frontier in the mean-variance space. It is shown that this set is bordered by five parabolas.

Suggested Citation

  • Taras Bodnar & Wolfgang Schmid, 2009. "Econometrical analysis of the sample efficient frontier," The European Journal of Finance, Taylor & Francis Journals, vol. 15(3), pages 317-335.
    • Handle: RePEc:taf:eurjfi:v:15:y:2009:i:3:p:317-335
    DOI: 10.1080/13518470802423478
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    References listed on IDEAS

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    1. John H. Cochrane, 1999. "Portfolio advice of a multifactor world," Economic Perspectives, Federal Reserve Bank of Chicago, vol. 23(Q III), pages 59-78.
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