Is 1/n Really Better than Optimal Mean-Variance Portfolio?

23 Pages Posted: 25 Nov 2014

See all articles by Woo Chang Kim

Woo Chang Kim

Korea Advanced Institute of Science and Technology (KAIST)

Yongjae Lee

UNIST

William T. Ziemba

University of British Columbia (UBC) - Sauder School of Business; Systemic Risk Centre - LSE

Date Written: November 1, 2014

Abstract

It is widely believed that the 1/n portfolio provides a good ex-post performance. Several studies have compared the 1/n portfolio with respect to a set of optimal mean-variance policies to prove or disprove the superiority of the 1/n portfolio. However, this approach is not likely to yield a definitive answer, since it provides only relative information. This paper evaluates the performance ranking of the 1/n portfolio in absolute sense. We enumerate all possible portfolios within a specified asset universe, and compare the 1/n portfolio among all possible portfolios to find that 1/n is not really better than the average portfolio.

Keywords: Equally-Weighted Portfolio, Optimal Mean-Variance Portfolio, Portfolio Performance Evaluation

JEL Classification: G11, C60

Suggested Citation

Kim, Woo Chang and Lee, Yongjae and Ziemba, William T., Is 1/n Really Better than Optimal Mean-Variance Portfolio? (November 1, 2014). Available at SSRN: https://ssrn.com/abstract=2530287 or http://dx.doi.org/10.2139/ssrn.2530287

Woo Chang Kim

Korea Advanced Institute of Science and Technology (KAIST) ( email )

373-1 Kusong-dong
Yuson-gu
Taejon 305-701, 130-722
Korea, Republic of (South Korea)

Yongjae Lee

UNIST ( email )

gil 50
Ulsan, 689-798
Korea, Republic of (South Korea)

HOME PAGE: http://https://felab.unist.ac.kr/yongjaelee

William T. Ziemba (Contact Author)

University of British Columbia (UBC) - Sauder School of Business ( email )

2053 Main Mall
Vancouver, BC V6T 1Z2
Canada
604-261-1343 (Phone)
604-263-9572 (Fax)

HOME PAGE: http://williamtziemba.com

Systemic Risk Centre - LSE ( email )

Houghton St, London WC2A 2AE, United Kingdom

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