Department of Economics
This paper extends the work of Markowitz (1952), Korkie and Turtle (2002) and others by first proving that the traditional estimate for the optimal return of self-financing portfolios always over-estimates from its theoretic value. To circumvent the problem, we develop a bootstrap estimate for the optimal return of self-financing portfolios and prove that this estimate is consistent with its counterpart parameter. We further demonstrate the superiority of our proposed estimate over the traditional estimate by simulation.
Optimal portfolio allocation, mean–variance optimization, self-financing portfolio, large random matrix, bootstrap method
Source Publication Title
Risk and Decision Analysis
Link to Publisher's Edition
Bai, Z., Liu, H., & Wong, W. (2009). On the Markowitz mean-variance analysis of self-financing portfolios. Risk and Decision Analysis, 1 (1). https://doi.org/10.3233/RDA-2008-0004