In defence of mean variance optimisation

• Autorzy: Adock C. J.
• Języki publikacji: EN

Abstrakty

EN

The construction of optimised portfolios of risky financial assets is usually carried out using quadratic programming. The use of this optimisation method is justified by the assumption that returns follow a multivariate normal distribution and/or the investor espouses a quadratic utility function. Such utility functions are criticised on the grounds that, according to the quadratic model, there are situations in which the investor will prefer less wealth to more wealth and that risky assets are regarded as an inferior good. In this paper, it is shown that, for normally distributed retums, this criticism of the quadratic utility function is unjustified. A number of relevant results are summarised and some extensions are given. These show that any utility function willlead to a point on the Markowitz mean-variance efficient frontier. The same property also holds in the presence of transactions costs. The paper discusses the implication of these results and concludes with a brief summary of the problems that arise when return s are not normal.

Słowa kluczowe

EN

portfolio selection; optimization

PL

optymizacja; ekonometria

• Wydawca: University of Zielona Góra, Faculty of Economics and Management
• Czasopismo: Management
• Rocznik: 2001
• Tom: Vol. 5, no 1
• Strony: 107--118
• Opis fizyczny: Bibliogr. 22 poz.

Twórcy

autor

Adock C. J.

• The University of Sheffield, United Kingdom