The errors-in-variable model in the optimal portfolio construction

• Autorzy: Czapkiewicz A. , Machowska M.
• Języki publikacji: EN

Abstrakty

EN

In the paper we consider a modification of Sharpe's method used in classical portfolio analysis for optimal portfolio building. The conventional theory assumes there is a linear relationship between asset's return and market portfolio return, while the influence of all the other factors is not included. We propose not to neglect them any more, but include them into a model. Since the factors in question are often hard to measure or even characterize, we treat them as a disturbances on random variables used by classical Sharpe's method. The key idea of the paper is the modification of the classical approach by application of the errors-in-variable model. We assume that both independent (market portfolio return) as well as dependent (given asset's return) variables are randomly distributed values related with each other by linear relationship and we build the model used for parameters' estimation. To verify the model, we performed an analysis based on archival data from Warsaw Stock Exchange. The results are also included.

Słowa kluczowe

EN

maximum likelihood method; errors-in-variables model; portfolio; simulation study

• Wydawca: AGH University of Science and Technology Press
• Czasopismo: Decision Making in Manufacturing and Services
• Rocznik: 2007
• Tom: Vol. 1, no. 1-2
• Strony: 49--57
• Opis fizyczny: Bibliogr. 8 poz., rys., wykr.

Twórcy

autor

Czapkiewicz A.

• AGH University of Science and Technology, Faculty of Management, Cracow

autor

Machowska M.

• AGH University of Science and Technology, Faculty of Management, Cracow

Bibliografia

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• 4. E.J. Elton, M.J. Gruber, Nowoczesna teoria portfelowa i analiza papierów wartościowych. WIG Press, Warszawa 1998.
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• 6. H.M. Markowitz, Portfolio Selection, Journal of Finance, 7 (1952), 1, 77–91.
• 7. O. Reiersol, Identifiability of a linear relation between variables which are subject to error, Econometrica 18 (1950), 575–589.
• 8. W.F. Sharpe, Portfolio theory and capital markets, Mc Graw-Hill, New York 1970.