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Legal Restrictions on Portfolio Holdings: Some Empirical Results

Author

Listed:
  • Hlouskova, Jaroslava

    (Department of Economics and Finance, Institute for Advanced Studies)

  • Lee, Gabriel S.

    (Department of Economics and Finance, Institute for Advanced Studies)

Abstract

This article investigates the sensitivity analysis of mean-variance portfolio holdings to changes in the upper bounds. The optimization problem studied in this paper is, thus, constrained by a restriction that no more than certain portion of wealth can be invested in any one security. Our empirical results show that for both risk tolerant as well as for risk averse investors, the performance and expected returns of mean-variance efficient portfolios under the legal restrictions are lower and the variance are higher than the corresponding ones without the restriction.

Suggested Citation

  • Hlouskova, Jaroslava & Lee, Gabriel S., 2001. "Legal Restrictions on Portfolio Holdings: Some Empirical Results," Economics Series 93, Institute for Advanced Studies.
    • Handle: RePEc:ihs:ihsesp:93
    as

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    File URL: https://irihs.ihs.ac.at/id/eprint/1321
    File Function: First version, 2001
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    References listed on IDEAS

    as
    1. Green, Richard C, 1986. "Positively Weighted Portfolios on the Minimum-Variance Frontier," Journal of Finance, American Finance Association, vol. 41(5), pages 1051-1068, December.
    2. Green, Richard C & Hollifield, Burton, 1992. "When Will Mean-Variance Efficient Portfolios Be Well Diversified?," Journal of Finance, American Finance Association, vol. 47(5), pages 1785-1809, December.
    3. Best, Michael J & Grauer, Robert R, 1985. "Capital Asset Pricing Compatible with Observed Market Value Weights," Journal of Finance, American Finance Association, vol. 40(1), pages 85-103, March.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Upper bound constraint; Portfolio holdings; Parametric quadratic programming;
    All these keywords.

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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