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- Publisher Website: 10.3905/jpm.2021.1.319
- Scopus: eid_2-s2.0-85124672368
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Article: Gains from Markowitz Optimization: Evidence from Reoptimization of Mutual Fund Holdings
Title | Gains from Markowitz Optimization: Evidence from Reoptimization of Mutual Fund Holdings |
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Authors | |
Issue Date | 16-Dec-2021 |
Publisher | Portfolio Management Research |
Citation | Journal of Portfolio Management, 2021, v. 48, n. 3, p. 199-218 How to Cite? |
Abstract | Prior studies have challenged the practical usefulness of Markowitz portfolio optimization in improving the return–risk trade-off in portfolio management. The authors approach this question from a unique angle by examining whether one can improve the performance of a large sample of actual mutual fund portfolios by reoptimizing the holdings using simple mean–variance optimization methods. The analyses produce compelling evidence of the benefits of Markowitz optimization. Simple portfolio optimization improves mutual fund portfolios’ risk-adjusted performance despite noisy expected return estimates inferred from mutual fund portfolio weights. Several alternative optimization strategies, including the risk-parity portfolio, minimum variance portfolio, mean–variance portfolio, and Sharpe ratio maximization portfolio, all outperform actual mutual fund portfolios in terms of the Sharpe ratio and other risk-adjusted performance measures. Moreover, the results are robust to subsamples partitioned on various dimensions. In contrast to the findings of DeMiguel et al. (2009), the authors find that the 1/N portfolio performs the worst. |
Persistent Identifier | http://hdl.handle.net/10722/331813 |
ISSN | 2023 Impact Factor: 1.1 2023 SCImago Journal Rankings: 0.735 |
ISI Accession Number ID |
DC Field | Value | Language |
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dc.contributor.author | Elavia, Tony | - |
dc.contributor.author | Kothari, S P | - |
dc.contributor.author | Li, Xu | - |
dc.contributor.author | You, Haifeng | - |
dc.date.accessioned | 2023-09-21T06:59:09Z | - |
dc.date.available | 2023-09-21T06:59:09Z | - |
dc.date.issued | 2021-12-16 | - |
dc.identifier.citation | Journal of Portfolio Management, 2021, v. 48, n. 3, p. 199-218 | - |
dc.identifier.issn | 0095-4918 | - |
dc.identifier.uri | http://hdl.handle.net/10722/331813 | - |
dc.description.abstract | <p>Prior studies have challenged the practical usefulness of Markowitz portfolio optimization in improving the return–risk trade-off in portfolio management. The authors approach this question from a unique angle by examining whether one can improve the performance of a large sample of actual mutual fund portfolios by reoptimizing the holdings using simple mean–variance optimization methods. The analyses produce compelling evidence of the benefits of Markowitz optimization. Simple portfolio optimization improves mutual fund portfolios’ risk-adjusted performance despite noisy expected return estimates inferred from mutual fund portfolio weights. Several alternative optimization strategies, including the risk-parity portfolio, minimum variance portfolio, mean–variance portfolio, and Sharpe ratio maximization portfolio, all outperform actual mutual fund portfolios in terms of the Sharpe ratio and other risk-adjusted performance measures. Moreover, the results are robust to subsamples partitioned on various dimensions. In contrast to the findings of <a href="https://www.pm-research.com/content/iijpormgmt/48/3/199#bib10">DeMiguel et al. (2009)</a>, the authors find that the 1/N portfolio performs the worst.<br></p> | - |
dc.language | eng | - |
dc.publisher | Portfolio Management Research | - |
dc.relation.ispartof | Journal of Portfolio Management | - |
dc.title | Gains from Markowitz Optimization: Evidence from Reoptimization of Mutual Fund Holdings | - |
dc.type | Article | - |
dc.identifier.doi | 10.3905/jpm.2021.1.319 | - |
dc.identifier.scopus | eid_2-s2.0-85124672368 | - |
dc.identifier.volume | 48 | - |
dc.identifier.issue | 3 | - |
dc.identifier.spage | 199 | - |
dc.identifier.epage | 218 | - |
dc.identifier.isi | WOS:000752446100013 | - |
dc.identifier.issnl | 0095-4918 | - |