IDEAS home Printed from https://ideas.repec.org/p/fip/fedgif/587.html
   My bibliography  Save this paper

On the inverse of the covariance matrix in portfolio analysis

Author

Listed:
  • Guy V. G. Stevens

Abstract

The goal of this study is the derivation and application of a direct characterization of the inverse of the covariance matrix central to portfolio analysis. As argued below, such a specification, in terms of a few primitive constructs, provides new and illuminating expressions for such key concepts as the optimal holdings of a given risky asset and the slope of the risk-return efficiency locus faced by the individual investor. The building blocks of the inverse turn out to be the regression coefficients and residual variance optained by regressing the asset's excess return on the set of excess returns for all other risky assets.

Suggested Citation

  • Guy V. G. Stevens, 1997. "On the inverse of the covariance matrix in portfolio analysis," International Finance Discussion Papers 587, Board of Governors of the Federal Reserve System (U.S.).
  • Handle: RePEc:fip:fedgif:587
    as

    Download full text from publisher

    File URL: http://www.federalreserve.gov/pubs/ifdp/1997/587/default.htm
    Download Restriction: no

    File URL: http://www.federalreserve.gov/pubs/ifdp/1997/587/ifdp587.pdf
    Download Restriction: no

    More about this item

    Keywords

    Risk;

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:fip:fedgif:587. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Franz Osorio). General contact details of provider: http://edirc.repec.org/data/frbgvus.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.