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Complex Modern Portfolio Theory

Author

Listed:
  • Oliver Hellum
  • Theis I. Jensen
  • Bryan T. Kelly
  • Semyon Malamud

Abstract

The literature has long wrestled with the practical usefulness of Modern Portfolio Theory (MPT), and extensive evidence shows its performance decreases rapidly with the number of assets (N). We present several new and counterintuitive facts about MPT. Most importantly, the performance of MPT in fact increases with N once the number of assets exceeds the number of training observations (T). This finding holds in a variety of settings: in conjunction with popular portfolio regularization methods, in a variety of asset universes, and when T is large or small.

Suggested Citation

  • Oliver Hellum & Theis I. Jensen & Bryan T. Kelly & Semyon Malamud, 2026. "Complex Modern Portfolio Theory," NBER Working Papers 35246, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:35246
    Note: AP
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    More about this item

    JEL classification:

    • C49 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Other
    • G1 - Financial Economics - - General Financial Markets
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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