On the Sensitivity of Mean-Variance-Efficient Portfolios to Changes in Asset Means: Some Analytical and Computational Results

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ID: 298560
1991
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Abstract
This paper investigates the sensitivity of mean-variance(MV)-efficient portfolios to changes in the means of individual assets. When only a budget constraint is imposed on the investment problem, the analytical results indicate that an MV-efficient portfolio's weights, mean, and variance can be extremely sensitive to changes in asset means. When nonnegativity constraints are also imposed on the problem, the computational results confirm that a positively weighted MV-efficient portfolio's weights are extremely sensitive to changes in asset means, but the portfolio's returns are not. A surprisingly small increase in the mean of just one asset drives half the securities from the portfolio. Yet the portfolio's expected return and standard deviation are virtually unchanged.
Reference Key
openalex_W2131868098 Use this key to autocite in the manuscript while using SciMatic Manuscript Manager or Thesis Manager
Authors Michael J. Best, Robert R. Grauer
Journal review of financial studies
Year 1991
DOI
10.1093/rfs/4.2.315
URL
https://doi.org/10.1093/rfs/4.2.315
Keywords Keywords not found

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