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

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