On the Markowitz Mean-Variance Analysis of Self-Financing Portfolios

21 Pages Posted: 19 Oct 2006 Last revised: 18 Aug 2016

See all articles by Zhidong Bai

Zhidong Bai

Northeast Normal University

Huixia Liu

Northeast Normal University

Wing-Keung Wong

Asia University, Department of Finance

Date Written: August 17, 2016

Abstract

This paper extends the work of Korkie and Turtle (2002) 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.

Keywords: Self-Financing Portfolios, Optimal Portfolio Allocation, Mean-Variance Optimization, Large Random Matrix, Bootstrap Method

JEL Classification: G11, C13

Suggested Citation

Bai, Zhidong and Liu, Huixia and Wong, Wing-Keung, On the Markowitz Mean-Variance Analysis of Self-Financing Portfolios (August 17, 2016). Available at SSRN: https://ssrn.com/abstract=938348 or http://dx.doi.org/10.2139/ssrn.938348

Zhidong Bai

Northeast Normal University ( email )

Changchun
China

Huixia Liu

Northeast Normal University ( email )

Changchun
China

Wing-Keung Wong (Contact Author)

Asia University, Department of Finance ( email )

Taiwan
Taiwan

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