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Markowitz Portfolio And The Blur Of History

Author

Listed:
  • CHI TIM NG

    (Department of Mathematics, Statistics, and Insurance, Hang Seng University of Hong Kong, Hang Shin Link, Siu Lek Yuen, Shatin, N.T., Hong Kong)

  • YUE SHI

    (School of Mathematical Science, Beihang University, No. 37 Xueyuan Road, Haidian District, Beijing, P. R. China)

  • NGAI HANG CHAN

    (Department of Statistics, Chinese University of Hong Kong, Shatin, N.T., Hong Kong)

Abstract

It is shown in this paper that when the true mean return vector is replaced by the inferred mean vector obtained indirectly from factor model and arbitrage pricing theory, its impact on the resulting optimal portfolio is insignificant. To achieve this goal, several assumptions are imposed: (i) the asset returns are generated from a factor model, (ii) the number of assets goes to infinity, and (iii) there is no asymptotic arbitrage opportunities. Issues related to the efficiency of the estimated optimal portfolio for high-frequency data are discussed. The portfolio constructed using the sample mean vector and using the inferred mean vector from arbitrage pricing theory are compared.

Suggested Citation

  • Chi Tim Ng & Yue Shi & Ngai Hang Chan, 2020. "Markowitz Portfolio And The Blur Of History," International Journal of Theoretical and Applied Finance (IJTAF), World Scientific Publishing Co. Pte. Ltd., vol. 23(05), pages 1-19, August.
    • Handle: RePEc:wsi:ijtafx:v:23:y:2020:i:05:n:s0219024920500302
    DOI: 10.1142/S0219024920500302
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    Cited by:

    1. Basilico, Natalí & Chaparro, Ana Karen Guerrero & Mares, Jesús Eduardo López & Figueroa, Darío, 2022. "Efectos de las instituciones en la dinámica emprendedora del Mercosur durante el período 2002-2017," Revista Tendencias, Universidad de Narino, vol. 23(2), pages 100-122, July.

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