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The Hansen ratio in mean--variance portfolio theory

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  • Alev{s} v{C}ern'y

Abstract

It is shown that the ratio between the mean and the $L^2$-norm leads to a particularly parsimonious description of the mean-variance efficient frontier and the dual pricing kernel restrictions known as the Hansen-Jagannathan (HJ) bounds. Because this ratio has not appeared in economic theory previously, it seems appropriate to name it the Hansen ratio. The initial treatment of the mean-variance theory via the Hansen ratio is extended in two directions, to monotone mean-variance preferences and to arbitrary Hilbert space setting. A multiperiod example with IID returns is also discussed.

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  • Alev{s} v{C}ern'y, 2020. "The Hansen ratio in mean--variance portfolio theory," Papers 2007.15980, arXiv.org.
    • Handle: RePEc:arx:papers:2007.15980
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