On the Sensitivity of Mean-Variance-Efficient Portfolios to Changes in Asset Means: Some Analytical and Computational Results
This paper investigates the sensitivity of mean-variance(MV)-efficient portfolios to changes in the means of individual assets. When only a budget constraint is imposed on the investment problem, the analytical results indicate that an MV-efficient portfolio’s weights, mean, and variance can be extremely sensitive to changes in asset means. When nonnegativity constraints are also imposed on the problem, the computational results confirm that a positively weighted MV-efficient portfolio’s weights are extremely sensitive to changes in asset means, but the portfolio’s returns are not. A surprisingly small increase in the mean of just one asset drives half the securities from the portfolio. Yet the portfolio’s expected return and standard deviation are virtually unchanged.
- DOI
- 10.1093/rfs/4.2.315
- Volume
- 4 (2)
- Pages
- 315-342
- Language
- en
- Export
- BibTeX
- Sources
- crossref openalex