Mean-Variance Investing

62 Pages Posted: 19 Aug 2012  

Andrew Ang

BlackRock, Inc

Date Written: August 10, 2012


Mean-variance investing is all about diversification. Diversification considers assets holistically and exploits the interaction of assets with each other, rather than viewing assets in isolation. Holding a diversified portfolio allows investors to increase expected returns while reducing risks. In practice, mean-variance portfolios that constrain the mean, volatility, and correlation inputs to reduce sampling error have performed much better than unconstrained portfolios. These special cases include equal-weighted, minimum variance, and risk parity portfolios.

Keywords: Diversification, efficient frontier, free lunch, non-participation, risk parity, volatility weighting, estimation risk

JEL Classification: G11, G12

Suggested Citation

Ang, Andrew, Mean-Variance Investing (August 10, 2012). Columbia Business School Research Paper No. 12/49. Available at SSRN: or

Andrew Ang (Contact Author)

BlackRock, Inc ( email )

55 East 52nd Street
New York City, NY 10055
United States

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